Panamaxes on the up?

The values of secondhand panamax bulkers appear to have received a sudden shot in the arm. 

Indeed, a recent series of en-bloc acquisitions by big owners seem to show that panamaxes are back in vogue. Last week, Pan Ocean picked up two kamsarmaxes from bankrupt Hanjin; Golden Ocean bought five panamaxes as part of its acquisition of Quintana’s 14-vessel dry fleet; and at the end of February, Star Bulk picked up four kamsars from Nisshin.

Secondhand value surge

Perhaps this week’s most interesting deal was the reported sale of Jiangsu Huaxi Ship Management’s 2006-built panamax Grand Legend to a Greek buyer for $8.5m. The price is more than double what the Chinese owner paid for the vessel at auction in September, when it bought the ship from Mercator. Indeed, China-built panamaxes aged 10+ years have struggled to achieve more than $5m over the past 12 months. Buyer demand has helped boost Jiangsu Huaxi’s sale price.

This upturn has been reflected in S&P assessments by the Baltic Exchange, which has added more than $3.0m in value to its benchmark panamax vessel over the past two months. On Monday, the Baltic assessed the value of a five-year-old, 74,000-dwt panamax (built at a “first-class” yard) at $17.3m – almost 23% above its January 31 assessment of $14.1m. Indeed, Baltic estimates stagnated around the $14.0m mark for much of 2016. What’s going on?

What newbuildings?

In other shipping segments, attractive contract prices for newbuildings are driving down secondhand asset values (we wrote about the effect on the VLCC market earlier this year). This isn’t a problem for panamax bulkers, however, as there have been no reported orders for newbuildings since the end of May 2016. In fact, only four new panamaxes were ordered last year in total.

So while only four new vessels have been ordered, some 108 panamaxes have been sold for demolition since January 1, 2016 to date. This is equivalent to around a 5% net fleet contraction, taking into account the 46 vessels delivered new from shipyards so far this year.

There are currently around 2,028 panamaxes on the water, of which an estimated 455 are aged 15 years or older, which – in theory – could make them scrapping candidates. But don’t count on it just yet…

Market upswing

Spot rates are doing well, so owners are going to want to keep hold of their panamaxes for now (only seven have been reported sold for demolition since 2017 began). Rates have doubled since the end of January on round-trips from southern China via Indonesia. Things have been a little more volatile in the Atlantic, peaking in the first week of March, but are gaining ground again this week. The upturn is due to robust Chinese demand for Brazilian soybeans, which has particularly improved rates for panamax runs from Brazil to China.

This enthusiasm can also be seen in the period market, where fixtures have been coming thick and fast since the year began. Six-month fixtures keep flirting with the $11,000-per-day level, and this week saw a one-year fixture booked at this price too. By way of comparison, six-month periods were fixing at between $5,000 and $6,000 daily at this point last year; 12-month deals were struggling to top $5,000 per day.

The rest of the year

Excluding the 46 panamaxes already delivered, another 107 are scheduled for delivery this year, which will grow the fleet by a gross 5.3% in terms of vessel numbers by the end of 2017. Fleet growth will slow again in 2018, when only 23 vessels are expected to hit the water, all of which will be kamsarmaxes.

This year’s good soybean season should hopefully bode well for cargo availability and demand growth. Nevertheless, the shipping press has been full of comment advising against overoptimism in the dry market as a whole.

“With 2017 starting at a high level, consecutive quarterly developments may disappoint in the second half of the year,” Ultrabulk said in its annual report for 2016, quoted in TW. "It is not certain yet, as crop forecasts, house prices and Chinese finance can only guide us six months ahead.”

Ultrabulk projects demand growth of 3.3% this year, which it said should exceed supply growth of around 2.0% in the dry market as a whole.

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