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Low Dry Bulk Vessel Values Not Low Enough to Tempt Buyers

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Jan. 5 2016, Updated 11:26 a.m. ET

Vessel values

Dry bulk shipping vessel values usually show expectations for future freight rates. While newbuild rates gauge long-term fundamentals, secondhand vessel rates usually represent short- to medium-term rate expectations.

Vessel values have fallen to very attractive prices, especially for secondhand vessels. But investors are still wary of the downside ahead.

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Newbuild prices have fallen

In December 2015, average vessel prices for newbuilds fell near levels not seen since 2003.

  • Capesize fell from $54.2 million to $46 million, a 15.1% decline YoY (year-over-year).
  • Panamax fell from $29 million to $25.7 million, an 11.4% decline YoY.
  • Handymax/Supramax vessels fell from $27.2 million to $24.1 million, an 11.4% decline YoY.

Even at these levels of newbuilds, dry bulk companies are not placing orders, mainly due to present oversupply and weak demand.

Secondhand vessels also fell

While November saw the steepest fall in secondhand vessel prices in 2015, December was no better. Prices for five-year-old and ten-year-old Capesize vessels fell to multiyear lows of $25 million and $13.6 million, respectively. Five-year-old Panamax and Supramax vessel prices fell by 30% and 35% YoY in December, to $14 million and $13.6 million, respectively.

The decline in vessel values shows the bleak outlook for dry bulk rates. But it could also mean more pressure for dry bulk companies such as Diana Shipping (DSX), Ship Finance International (SFL), Navios Maritime Holdings (NM), and Navios Partners (NMM). Since several dry bulk companies have used ships as collateral to fund additional ship purchases, lower ship values also increase the risk of violating loan agreements. The Guggenheim Shipping ETF (SEA) invests in major shipping companies around the world. Ship Finance International (SFL) makes up 3.8% of SEA’s holdings.

In the next part of this series, we’ll see how the coal trade is progressing in China and India.

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