Tag Archives: dry bulk

Supply/demand improving but shipyards must still fight for survival, says MSI

Sea storm

Some major market indicators are improving but yards remain underemployed and newbuilding and second-hand prices have not yet hit bottom

London, 2 August, 2017. After a painful decade in which the shipping industry has suffered from an unhealthy supply position, a sustained reduction in contracting has at last begun to move the orderbook into closer balance with an improving demand picture.

But despite the positive news, shipyard prices may still fall according to the latest MSI analysis. Too many yards still have too little forward cover and even those considered high quality facilities must be considered at risk of closure.

Comparing the situation of mid-2015 with today’s orderbook, MSI analysis shows that orderbook levels across all the main sectors have come down significantly. Even so, several factors weigh on the yards’ ability to compete until demand and earnings pick up towards the end of the decade, says MSI Director Dr Adam Kent.

“On an annual average basis, MSI believes there is around another 5% for newbuilding prices to fall in 2018. Obviously this will be partly dependent on the shipyard and the vessel type, but we think that shipyard forward cover will fall further in 2018, as deliveries outstrip contracting. What this means for newbuild prices as a whole, is that we don’t believe the bottom of the price cycle has been reached yet,” he says.

Many shipyards will remain woefully underemployed in 2018. The only facilities looking relatively healthy on a historical basis are European, where cruiseship orders placed in the last 12 months will keep them busy for some time to come.

Scheduled output in South Korea in 2017 is at around 100%, but looking just six months out to 2018, the country’s Tier One yards are only at around 50% utilization. Yards that remain so severely underemployed will continue to price low to attract new orders.

“China is looking a little better at the Tier One yards, though there is still a large swathe of Tier Two yards that have no orders, and the same goes for Japan. There has been a lot of talk about a ‘Chinese White List’ of shipyards but when we look at these, it is apparent that it has been a long time since many of these have taken any orders, ” adds Dr Kent.

MSI expects shipyard costs to decline marginally in 2018, largely driven by commodity prices and the reduction in steel plate prices in 2018 before we see some uptick in 2019 and 2020.

Looking at second-hand vessel prices, where the actual bottom of the price cycle will be found is also dependent on the sector under analysis, but MSI does not expect a sustained recovery second hand prices across the sectors until 2019 or 2020, according to Dr Kent.

“Based on MSI’s quarterly forecasts for second hand prices, Capesize vessels will actually come off further this year and the bottom of this cycle will be in Q1, 2018. Tankers will hit bottom a little later but MSI believes the worst stage of the cycle has already passed for containerships.”

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About Maritime Strategies International
Since its inception in 1986, Maritime Strategies International (MSI) has established itself as one of the shipping industry’s foremost independent research and consultancy firms. Our success is built on a strong focus on maritime economics and econometric modelling. We provide a comprehensive range of advisory services, including forward valuations market forecasts, reports and commercial consultancy services for all shipping sectors. MSI asset price forecasts are used by ship finance providers holding 40% of all shipping bank debt and we provide analytical and methodological support to give the context and credence to our results. For more information please see www.msiltd.com

For further information and interviews, please contact Neville Smith, Mariner Communications Tel: +44 7909 960 182.

Capesize ‘uptick’ needs stronger fundamentals to turn into a summer surge

LogoA rise in iron ore trade, higher steel prices and increased scrapping have all contributed to recent improvements but the outlook is fragile

April 19, 2016. The latest Dry Bulk Freight Forecaster from Maritime Strategies International* analyses the recent uptick in the Capesize market and considers the positive trends and mitigating factors.

MSI finds the indicators are relatively positive in the short-term for iron ore trade. On the supply-side, iron ore prices of $50-60/tonne are in profitable territory for the big iron ore miners and will no doubt support the ramp up of new export capacity in Australia and Brazil.

On the demand side, an uptick in steel prices and steel production in China in March underpins more positive sentiment. In addition, concerns of high iron ore stockpiles in China are overplayed; at 97mt stocks are the highest since May last year but not far from the historical average and below a peak of 114mt in Q2 2014.

MSI is relatively optimistic for Capesize market over the next six months when compared with today’s levels, forecasting spot rates of $8,000/day in June and almost $10,000/day in September.

Will Fray, Senior Analyst at MSI said:

“There is no doubt that better iron ore trade has been behind the uptick in Capesize freight rates. March exports from Brazil were up 22% yoy to 35mt and Australia’s exports have gained ground year on year by a smaller margin. The cumulative impact of these gains, coupled with very strong Capesize scrapping in Q1 more than offsetting deliveries, has been enough to spark a limited positive freight response early in Q2.”

March saw a further contraction in the Capesize fleet, the second largest monthly reduction since 2000, with the fleet shrinking by 1.3m dwt. Deliveries of a meagre 1.1m dwt were outstripped by 2.4m dwt of scrapping.

MSI’s latest forecast for deliveries totals 6.4 dwt and 4.6m dwt in Q2 and Q3 respectively. Although bullish, those forecasts have already accounted for significant cancellation and slippage, both of which play a role in altering the near-term delivery schedule.

For the uptick to be sustained, Fray says the Capesize market will need to see a continuation of the nascent recovery in Chinese steel output and also coal imports.

“With iron ore imports now contributing a dominant proportion of consumption in China of around 80-90% by month, if steel output there falters then global ore trade will suffer. In addition, the stabilisation in hitherto declining Chinese coal imports will need to be sustained; March’s imports actually increased by over 15% yoy, the first yoy increase since June 2014.”

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About Maritime Strategies International
Since its inception in 1986, Maritime Strategies International (MSI) has established itself as one of the shipping industry’s foremost independent research and consultancy firms. Our success is built on a strong focus on maritime economics and econometric modelling. We provide a comprehensive range of advisory services, including forward valuations market forecasts, reports and commercial consultancy services for all shipping sectors. MSI asset price forecasts are used by ship finance providers holding 40% of all shipping bank debt and we provide analytical and methodological support to give the context and credence to our results.

MSI has recently launched Forecast Marine eValuator (FMV), the first web-based tool to provide historical and forecast price and cash flow data covering all key deepsea shipping sectors. MSI FMV offers unique insight into future values and cash flows for individual ships across all key shipping sectors. Recent history and a near-term perspective are provided via quarterly metrics; the long view is provided by 15 years of forecast annual average data. To find out more, please visit: www.msiltd.com/fmv

For further information and interviews, please contact Neville Smith, Mariner Communications Tel: +44 7909 960 182.