A Dead Cat Bounce For The
dry bulk market? Market sees a temporary recovery before returning to its downward trend By William Bennett, Senior Analyst, VesselsValue
ould rates for dry bulk ships be recovering? Over the last 12 months, values have been stable, sitting close to 25-year low. In February 2016, a 5-year-old Capesize could be bought for $20.6 million. Over the last two months, according to data compiled by VesselsValue, there has been a recovery in the market value for bulkers, with bulker values rising 50% and a five-year-old Capesize vessel being sold in excess of $32 million (i.e., sales of the 2012built Dong A Artemis). However, over the last month we have witnessed a softening in BCI rates from a peak of $20,000/day at the end of March down to $10,000/day at press time. The total spent between January and April 2017 is in line with last year, however, it is a far cry from the $2 billion spent on Capesize vessels in 2014.
So what’s happening? VesselsValue’s commercial arm, Seasure Shipbroking, is witnessing the beginnings of a softening market and for many in the dry bulk space are wondering if this is a “dead cat bounce”—a temporary recovery in an otherwise bearish market. There is also a similar story for the smaller bulker vessels, such as the Panamax sector. Over the last few months these vessels have seen similar gains in market value, however, the industry is dealing with the fundamental issue of oversupply. To counter this, there has been a lot of slow steaming over the last few months, which has affected the available capacity, but it is a short-term solution. This tactic will have to be consistently employed without the addition of any more tonnage and continued scrapping.
Why Historic Lows for S&P Values? In simple terms, current excess shipyard capacity, combined with availability of capital and positive swings sentiment, has allowed large amounts of newbuildings to be ordered and delivered. This was particularly evident in 2013/2014 where an improvement in sentiment in the dry bulk sector led to a large amount of newbuilding orders in a very short period. This was mostly financed by an influx of private equity money, ordering newbuilding “eco” engines when they thought values had bottomed out. The small signs of a recovery towards the end of 2013 and throughout 2014 failed to turn into sustained growth. However the consistent level of newbuild deliveries combined with lackluster dry bulk demand, brought the market to the historic lows first achieved in 2016. June 2017 Yearbook // Marine Log 19