Five-year-old LR1s, handysizes, Panamax boxships seen as best asset play bets

Certain segments of the secondhand vessels market are set to do very well over the next two years. According to the VesselsValue & ViaMar’s Market Asset Value Forecast for the second quarter, LR1 product tankers, handysize bulkers and panamax container ships are seen benfitting the most from an upturn in market conditions, although all segments are seen rising

“Putting extended trade disputes aside, most market segments have favourable tailwinds. The contraction of yard capacity is expected to support the replacement value of ships, while short term earnings have either bottomed, or started to recover in most markets,” VesselsValue said.

Prime aged vessels, defined by VesselsValue as a five-year-old asset, have been forecasted to be steadily rising to peak roughly around the second half of 2020.

The vessel valuation platform pointed to the steady scrapping of older tankers as a reason for asset values to climb as a finer balance emerges between supply and demand. In addition, the recent OPEC decision to boost production should also increase the cargoes from the Arabian Gulf, leading to a rosier outlook for the second half of the year than many predicted, VesselsValue added.

However the biggest gains of about 40% from current values are seen in the LR1s, due to a combination of low prices now and anticipated demand as the industry ramps up towards the 2020 global sulphur cap.

“The run up in demand for distillate flows ahead of the 2020 bunker switchover should benefit large clean product tankers. LR1s are currently seeing depressed asset values, and the expected value on mean reversion alone should benefit owners,” suggested VesselsValue.

Among dry bulk vessels, “asset values are seeing the benefit of a higher earnings environment brought on by a steady rise in ton mile demand and fleet recycling efforts in 2016 and 2017,” VesselsValue said, noting that prices still some way to run, in the high 20% range for most segments, as scheduled deliveries of outstanding orders are moderate.

Read more: Pacific Basin buys secondhand handysize, warns of full year loss

Similar to the view of many of the dedicated minor bulks players as well, VesselsValue also saw the best upside for the handysize segment, where it expected to see gains of almost 40%.

VesselsValue also saw a rebound in the containership market “as the consolidation of commercial controllers is leading to more sustainable rate structure”. It added that asset values are expected to retain their increases through the end of the forecast window due to the small orderbooks in most segments except for ULCVs. The Panamax segment was singled out for the highest potential gain of over 60% from current prices, although both the sub-Panamax and post-Panamax segments were predicted to see gains of well over 40%. Interestingly enough, the feeder segment was seen rising the least, with a potential gain of just over 30%.

This runs against recent trends in the liner market, where many as recently as 2016 were lamenting the death of the Panamax boxship. Meanwhile, many other market players have also suggested that the increasingly aged tonnage in the feeder market and lack of replacement orders is set to lead to a rise in prices in this segment.
Posted 03 July 2018

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Vincent Wee

Asia Editor, Seatrade Maritime News