9th April 2010 - Maximising Value
The recent spate of new orders across most markets may indicate that owners are beginning to feel that the time is right for further investment in newbuildings. Prices may have bottomed out at around two-thirds of the newbuilding price on offer in mid 2008, but have shown some recent gains and with the cost of steel starting to rise we may well see a further upturn in prices. However, interest in picking-up distressed sales may be waning as ‘immediate' delivery into a flat, potentially oversupplied market may be less attractive then waiting for a 2011/12 delivery when rates are forecast to rise. Why take a resale now which would require full payment of the asset value (albeit reduced), into an oversupplied market when a fresh order only requires payment of your initial deposit and wait for your asset to be delivered into, hopefully an improving market? How times have changed from 2007/8, when second-hand values exceeded newbuilding prices as owners clamoured for delivery as quickly as possible in a very strong market.
Tanker Pacific are one of the latest owners to announce entry into the newbuilding market, with an order for 4 Suezmaxes from Hanjin Heavy Industries, Philippines. This takes ordering to 38 tankers in this size category since January 2009 and 30 VLCC orders over the same period; still some way off the 80 Suezmaxes ordered in 2006 and 103 VLCCs in 2008. By coincidence, the Suezmax orderbook is also the sector which has seen the most significant changes, with 30 units cancelled since October 2008. However, many of these are not outright cancellations; several have been changes to other sizes of tanker or drybulk. India's Great Eastern Shipping has been the latest owner to switch orders cancelling 2 Suezmaxes in favour of 3 VLCCs.
Recent orders for Suezmax tonnage have been to fulfil strategic requirements and not on a speculative basis, as was the case with many orders in 2008. The demand outlook for larger crude carriers appears to be promising, as crude production increases in the Middle East, West Africa, Brazil and the Caspian go to meet imports into the new refineries in India and the Far East. This trend will raise long-haul crude trade and so lead to an increase in tonne miles for VLCC and Suezmax tonnage. Timing has always been a critical part of the business, are we on the cusp of a new wave of opportunity?
