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Is it the right time to buy secondhand dry bulk tonnage?

Is it the right time to buy secondhand dry bulk tonnage?
Dry bulk is still a smart move if you have equity in your pocket, but buy existing tonnage, rather than newbuilds, a leading global dry-bulk analyst told the recent Mare Forum conference in Abu Dhabi.

“Liquidity should survive over the next two-three years,” said Francesco Fuselli, of Banchero Costa, Genoa, Italy. “Access to credit is very difficult, but not impossible.”

During 2015, 612 bulk carriers in excess of 20,000 dwt were delivered, 63% of the orderbook at the beginning of the year. Last year, dry-bulk deliveries totalled 47.4m dwt.

By breakdown, this amount included 155 handysize, 246 ultramax, 112 panamax, 16 postpanamax, 74 capesize and 9 VLOCs, the bank’s data show.

The dry-bulk fleet grew at 3% during 2015, the lowest rate this century. Its growth is expected to accelerate again to 5% during 2016 and then slow considerably in 2017. If no new orders are placed in the near future, 2018 should see the fleet’s size shrinking by 1%, Fuselli believes.

“Freight rates and secondhand prices are at historically low levels and are expected to remain under pressure in 2016,” he said.

The orderbook is huge for 2016 and then drops to preboom levels. It stands at 87.6m dwt, an increase of 85%.

“However, during 2015 only 63% of the orderbook as originally scheduled at the beginning of the year was delivered on time, while 32% of the orders were postponed and 5% was cancelled.”

Assuming just 30% of postponements, Fuselli believes “only” around 61m dwt will be delivered, still excessive, but in line with 2013, which was a year of tepid recovery.

“Fleet growth is expected to accelerate in 2016 because of the number of orders that were placed between 2013 and 2014 when the market was showing signs of recovery and the fashion for ‘Eco-Ships’ began.”

According to Banchero Costa’s analysis, three vessel categories will be broadly positive in the next three years: VLCCs, aframaxes and product tankers. Conversely, ultramaxes, panamaxes and capesizes will see negative cashflows.

He calculates VLCCs on time charter will see cashflows of $9.3m over the period, aframaxes $4.9m and product tankers $991,250. Ultramaxes will lose $4.2m, panamaxes $5.4m and capesizes $9.7m.

Newbuild VLCCs cost $89.9m, while five-year-old vessels go for $95m. Capesizes are $47.2m new, but drop to $37m in the secondhand market.

In a positive sign for owners, the gap between newbuild and secondhand prices keeps growing.

Prices for five-year-old vessels are at around 60% of newbuild cost, and new orders are not expected in the near future.

JPMorgan added its views a recent report on dry bulk. “We expect 2016 to be worse than 2015, with the demand outlook continuing to deteriorate and the remainder of the orderbook still to be delivered. However, we believe a case can be made that 2016 will be the trough in this structural downturn,” it said.

“Paradoxically, it’ll be better for the medium-term outlook the worse things are now as more owners hopefully throw in the towel and choose to scrap their vessels. Scrapping in 2016 is the major supply variable as the remainder of the orderbook is delivered.”

With the Baltic Dry Index continuing to hit fresh all-time lows, can the dry-bulk market players finally see some hope on the horizon?