Monday, November 17, 2008
Panamaxes push Dry Index upwards step-by-step
Monday, 17 November 2008
One thing seems certain these days of recession; the Baltic Dry Index (BDI), the index tracking the freight rates for transporting coal and iron ore by sea will take a long time to recover to high levels. After finally ending its frenetic slump from the middle of September and until two weeks ago, the index has stabilized posting marginal gains or losses for most sessions of the previous week. It ended at 841 points. But, a welcome relief came from the Panamax index, which made a noteworthy recovery, increasing by 117 points of 14 percent during the previous week, now trading at 953 points. But, the benchmark index for the industry, the one tracking capesizes demand and freight rates kept on falling, ending the week at 1,016 points and is poised to drop below the 1,000 points level even as you are reading this article.
With the market at these levels, cash-rich ship owners are on the hunt for bargains, mainly in the second hand market. Weberseas’ latest report said that “following last week's sales/benchmarks, there has been a huge increase in the enquiries and ongoing inspections this week from buyers all over the world who appear fully prepared to buy vessels at prices in line with these recent sales. It is true that the recent sales of Supramax and Panamax tonnage represent huge declines in asset values (by as much as 70%)”.
As the S&P market tries to find its balance, some things are worth mentioning. According to Weberseas, there is a large number of buyers, waiting for prices to correct by a further 10-20 percent or even more, before considering going ahead with purchases. But on the other hand, the broker’s report suggested that “the vast majority of Sellers are not prepared to sell their tonnage at current levels which were set during the last couple of weeks and hold on (at least for the time being) until they see some improvement in the freight market”. The above could be translated as if demand is higher than supply, which could mean that prices should be increased. But, unless an significant improvement takes place in the freight market, such a development is unrealistic. Weberseas also strongly advised that interested owners should start inspecting tonnage.
Soon, we may also see some newbuilding re-sale contracts, but in a reverse of the trend witnessed during the previous couple of years, when owners would pay hefty premiums to buy contracts for ships nearing their exit from the shipyard. This time around the case could be that in-debt owners would opt to sell their contracted tonnage at lower prices, in order to avoid bankruptcy, or go for another strategy in the market, possibly with secondhand and cheaper vessels. They could also use this method in order to cut their losses, since if they receive the expensive vessels ordered they could end up with assets not earning money, with the market at these levels.
As adapted from Hellenic News
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