EastGate has released a report outlining how, despite a tumultuous operating environment, the interest of market participants in investing in second-hand Capesize tonnage appears to be unabated. The findings of this latest report from EastGate, released on 21 December, are presented below.
Capesize market operating environment during 4Q20
The Capesize market in 4Q20 thus far has been defined by a steady decline in BDI with a recent small uptick during December.
After its 5TC average peaked in the first days of October to US$33 500/d, it is now hovering in the very low US$15 000’s/d region. Substantial sales volume was recorded amidst a steady supply of tonnage available for sale, feeding the enhanced appetite for second-hand Capesize investments during the first half of 4Q20.
The mix of low orderbook to fleet ratio (8% for Capesize vessels with 28 million dwt in September 2020, compared with 14% on the average during 2017 - 2019), ‘capped’ new-build contracting. This is primarily attributed to market, regulatory, and technological uncertainties (Capesize/Newcastlemax/VLOC new-build orders numbered just 10 units for 2020 up till October). It is this environment that signalled the resilience the dry bulk market has exhibited during the 2H20, amid various trade and logistical disruptions caused by the black swan ‘moment’ (albeit a long and protracted one) of the ongoing pandemic.
With Chinese economic stimulus propelling Chinese iron ore imports and swelling crude steel output, demand for dry bulk’s premier commodity iron ore is expected to continue supporting the market in 2021.
King iron ore
Iron ore performed impressively well in 2020 thus far and sealed the performance of the Capesize market in 2H20.
However, Brazilian iron ore exports fell to 29.1 million t in November, ending a more positive run (average of 33 million t in the period June-October), reportedly due to an early start to the rainy season.
Meanwhile, Vale has announced a major cut to its guidance for 2021 expected to total 315 - 335 million t, down from previous guidance of 340 - 355 million t. Further, total Brazilian seaborne iron ore exports in 2021 are projected to remain well below the 2018 levels for a third year, largely attributed to the Bruhmadinho dam disaster which took place in early 2019.
That said, Chinese steel industry continued to be the major defining driver for iron ore seaborne demand, with steel production running at high rates: the 11 months to November production levels reached 961 million t, up 11.8% y/y and should end the year at around 1.048 billion t, registering an all-time high.
China’s iron ore appetite may, however, ebb somewhat as economic stimulus impact moderates and with iron ore prices soaring to their highest levels since 2011 in US$164.39 per t for 62% iron, up an astonishing 78% in 2020. Prices have been sparked due to rampant Chinese demand, low interest rates lowering the cost of carrying commodities and causing inflationary pressures which generally enhance commodity prices, combined with the weak dollar and lower port inventories, as well as Vale’s downward revision in its yearly production earlier in the month.
Supply glimmer of hope
The supply component of the dry bulk equation is offering some respite as tonnage growth is expected to abate in 2021 with a Capesize orderbook of 17.1 million dwt, down from expected 2020 deliveries of 24.8 million dwt.
The Capesize orderbook for 2022 stood in November at 5.3 million dwt, with 12 Capesize new-build orders contracted up until November, marking the lowest level of Capesize new-build contracting during the last two decades, with about 4 million dwt contracted in 2020, down from 14.3 million dwt in the same period during 2019 – a 70% y/y decrease.
The Capesize fleet evolution in terms of vessels delivered is 75 vessels for 2017, 51 vessels for 2018, 80 vessels for 2019 and 86 vessels for 2020 (as of November) plus 20 more estimated for full 2020. As for the coming years, 67 vessels are scheduled to deliver in 2021 and 14 vessels in 2022, adding to 20 till year end 2020, totalling 101 Capesize deliveries until 2022. Regarding removal of capacity from the fleet, a total of 45 Capesize vessels have been scrapped till November wiping out 11 million dwt of Capesize capacity.
Rampant second-hand investment
The Capesize market entered the fourth and final quarter of the year in a bullish mood and the Capesize asset values appeared resilient due to an extent of a flurry of sale candidates particularly, but not only, from Far Eastern sellers.
But, as 4Q20 progressed, October to November, the earlier than anticipated Brazilian rainy season combined with ongoing issues with Vale’s production, dented Atlantic demand and consequently translated in Capesize vessels losing steam gathered earlier in the year since June/July. That has been factored in asset values with notable sales, such as ore carrier m/v Gaia Celeris (229 045 dwt built 2006 Namura), sold for approximately US$12 million to Singaporean Buyers early December, one of few ore carrier sales concluded within 2020, marking a reduction in values compared with the reported sale of the m/v NSS Honesty (229 548 dwt built 2007 Mitsui), sold for approximately US$13.5 million at the end of October, and of the m/v Vathy (229 186 dwt built 2004 Namura) which sold for US$13 million in September.
Albeit Capesize second-hand sales were in slim volumes after the third week of November, week 51 of 2020 saw the emergence of transactions, which concluded with the rumoured sales of: m/v Netadola (207 000 dwt built 2017 Jiangsu New Yangjijian SS/DD May 2022 – Tier II scrubber & BTWS & mewis duct fitted), rumoured to have been committed for approximately US$38 million to Greek buyers; sister vessel m/v Xanadu (206 000 dwt built 2017 Jiangsu New Yangjizian, SS/DD May 2022, Tier II, scrubber & BWTS & mewis duct fitted) rumoured to have been committed for approximately US$38 million to financial buyers; m/v MG Courage (206 000 dwt built 2007 Imabari SS/DD June 2022 BWTS fitted), rumoured to have been committed for approximately US$14.5 million to Greek Buyers; m/v Spartacus (179 000 dwt built 2011 Sungdong SS/DD Aug 2021), rumoured to have been committed for approximately US$18.75 million to financial buyers; and three Rickmers Capes – E.R. Borneo (178 000 dwt built 2010 HHI SS April 2022), E.R. Bayonne (178 000 dwt built 20210 HHI SS April 2025, DD May 2023), and m/v E.R. Buenos Aires (178 000 dwt built 2010 HHI SS June 2025 DD April 2023 ) – sold to Greek listed buyers for approximately US$39 million plus US$2.1 million in shares.
In the light of the hope brought by the COVID-19 vaccines, the end of the US Presidential race bringing the usual hope accompanying each new administration, the possible softening of trade tensions and the enhanced dry bulk demand, EastGate believes we can dare feel relatively optimistic for a recovery in 2021, in the freight market as well as in asset prices.
Read the article online at: https://www.drybulkmagazine.com/dry-bulk/31122020/eastgate-reports-capesize-second-hand-sales-bonanza-in-4q20/