Wednesday, March 28, 2012

"New ships at low prices"

New, fuel-efficient ships and low construction prices could come to the rescue of the world’s beleaguered shipbuilding industry.

Shipbroker Barry Rogliano Salles (BRS) says interest could be generated in building a “new, more competitive fleet compared to those ships ordered at higher prices, which will now be rendered less competitive”.

In its new annual review of the shipping and shipbuilding markets, BRS said: “With soaring fuel prices and falling freight rates, it is now critical that shipowners economise and place the emphasis on reducing fuel costs rather than expecting increased earnings.”

It says shipbuilders, struggling with a scarcity of demand, are now seeking to offer their customers substantial fuel-bill savings, which for a vessel burning five tonnes less bunkers each day should amount to nearly $10m. This assumes $700 per tonne and 250 days at sea over 20 years at a discounted annual rate of 5%.

The broker says a collapse in newbuilding orders of about 40% last year has resulted in “escalating competition between shipbuilders and a further decline in newbuilding prices”.

Market prices, says the broker, are now probably below cost and very close to a new historic low.

Dollar prices for the most representative bulker and tanker types were the same at the end of 2011 as 18 years ago.

“Shipyard overcapacity and a scarcity of demand will create a severe challenge for shipbuilders in 2012,” said BRS. “It is also possible that investors will turn their gaze to the secondhand market, which is likely to offer numerous opportunities at prices much lower than in the newbuilding market.”

This is unless factors such as new designs “enable yards to escape the depressed market and convince owners to prioritise new construction”.

“Resistance by yards will be strong but the potential decline in prices could reach about 10% again [in 2012, depending on the tonnage type, shipbuilding country, shipyard reputation and scale of orderbook].

“This will increase the pressure on shipbuilders and, alas, the risk of default as well.

“Whatever happens, a further and more rapid reduction in shipbuilding capacity seems inevitable,” the review concluded.

Published : March 28, 2012

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