Dry Bulk Commodities And Asset Values Steely Resolve

Since the advent of the pandemic in early 2020 and following the initial shock causing a deep dive in economic output worldwide, after China’s successful handing of the health crisis, two buzzwords have been in market participants’ lips: “vaccines rollout” and “post-pandemic economic recovery”, with a third one appearing in 1Q21 in the name of “supercycle” referring to commodities’ bullish sentiment.

Thus, market expectations of 2021 economic bounce back were blended with commodities rapacious ascent driving projections of 4.3-5.0% GDP growth (following last year’s contraction of 3.8%) which, if realised, will propel global GDP to pre-pandemic levels up to 6 months sooner than some analysts had initially expected.

Roaring commodities, rampant steel production

Mining commodities, especially iron ore and copper, have skyrocketed with iron ore to have hit a record high shy of US$230/t by mid-May, before retreating to sub US$200/t levels, albeit with fundamentals on its bench. Iron ore June contracts are also trading at below US$200/t lately as China stepped up to cool surging commodity prices by intensifying inspections on spot and futures markets.

Moreover, regulators in Shanghai and Tangshan have been warning mills against price collusion and price-distorting market practices in order to put under control its burgeoning iron ore import bill and restore discipline in the country’s upended 2021 steel production.

As for crude steel, China’s output of same registered an all-time high in April 2021 with 97.85 mt against 85.03 mt April 2020 sending total steel production for the first four months of the year climbing to 374.56 mt, up 16% y/y. For the first ten days of May, official data showed an average daily output at 2.4 mt of crude steel, a 17.8% y/y growth, sending steel inventories to 14.68mt, a 9.4% increase over previous ten days’ period.

Rising shipbuilding costs amidst dry bulk berths scarcity

With soaring commodity prices feeding into steel prices (over US$1,000/t with rumours for further increases ahead before Chinese authorities stepped up to curb surging steel prices) passing on into shipbuilding costs, with steel representing close to 40% of current inflated NB prices and also being a component in much of the material and equipment of a newbuilding vessel, vessels’ values have been inflated. Newcastlemax NB values have been propelled at very high US$50’s million levels and Japanese built Kamsarmax is rising from high US$20’s mill to topping US$32.5 mill.

Nevertheless, the situation is posing significant headaches for the yards which are not able to hedge their steel cost successfully and, in any case, are being forced to temporize new marketing slots since they have no pressure to sign loss making business unless quote prices that are advancing to levels that really bite so as to cover the incorporated steel cost component of final price.

Furthermore, container overordering and high margins enjoyed by yard in container, tanker and LNG segments make dry bulk available berths prior 2024 a forlorn hope for most Owners. Same trend seems to be exacerbated by recent news that liner company MSC is considering to convert some of its big containerships ordered into LNG dual-fuel, keeping more berths busy for longer time.

Steady unabated secondhand S&P activity

With fluctuating spot and forward freight rates moving shipbuilding and commodity prices, the secondhand S&P market is proving a pillar of stability in terms of continued high levels of activity which absorb buyers’ unabated interest in order to expand their positions in the current strong dry bulk market. In said respect, they find allies in Japanese sellers which have continued providing market with tonnage for sale.

On the Cape front, last week showed rumours emerging that freshly docked M/V Australia Maru (181,415 dwt built 2012 Koyo, SS Aug 2021, DD May 2023 BWTS & scrubber-fitted) fetched US$33.3/4 mill compared to mid/late March sale of BWTS-fitted M/V United Breeze (181,325 dwt built 2012 Imabari, SS/DD Jan 2022) at excess of US$29 mill and month-old sale of M/V Eibhlin (182,307 dwt built 2011 Universal, SS Jan 2026/DD Dec 2022 BWTS & scrubber-fitted) reported at US$30.2 mill.

The Kamsarmax segment has kept the strong sales momentum with rumours emerging (which remain to be confirmed) that BWTS-fitted eco M/V Ioanna L (81,837 dwt built 2017 Tsuneishi, SS/DD Sep 2022, BWTS-fitted) fetched a price of very high US$28’s mill with Tess82 M/V Twinkle Island (82,265 dwt built 2012 Tsuneishi, SS/DD/BWTS April 2022) committed at region US$21 mill, while in the previous week BWTS-fitted M/V Spring Aeolian (83,478 dwt built 2012 Sanoyas, SS/DD Jan 2022) was reported at region US$21.3 mill, with Tier I Tess82 M/V Tangerine Island (82,265 dwt built 2012 Tsuneishi, SS/DD Jan 2022) rumoured at US$20.9 mill and BWTS-fitted Tess82 Kamsarmax M/V Jaigarh (82,166 dwt built 2010 Tsuneishi) at region US$19 mill basis delivery Nov/Dec 2021. In comparison back in Feb 2021, M/V Navios Marco Polo (80,647 dwt built 2011 Universal, DD passed & BWTS-fitted) and M/V Nord Venus (80,655 dwt built 2011 Universal, SS/DD June 2021) were reported committed at region US$16.5 mill each.

On the Panamax front, M/V Wisdom Diva (76,606 dwt built 2009 Shin Kasado, SS Jun 2024/DD Jul 2022) is rumoured to have committed at region US$17-17.3 mill compared to M/V Pantera Rosa (78,844 dwt built 2009, Sanoyas) at US$13.2 mill back in January.
Source: EastGate Shipping

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