Contracting activity in the dry bulk sector has admittedly increased this year thus far with investors’ interest being fuelled by the rally on rates during the first three quarters. Overall, newbuilding orders in the bulker segment are projected to significantly surpass the levels of the previous year as figures YTD have already shown a considerable rise in new orders.
The total number of dry bulk orders is nearing 400 ships with Kamsarmax and Ultramax vessels being in the spotlight. Chinese shipyards are continuing to take the lead with October and November justifying their strong presence in the contracting activity of all bulker ship sizes with newbuilding prices to be also following an upward trajectory.
The green future of shipping has set a trend towards more LNG dual-fuelled Capesize vessels and this seems to persist as we are clearly undergoing an energy transition period. Data for the first ten months of 2021 suggest that around 44% of Capesize vessels have been ordered to be LNG dual-fuel capable, compared to 26% in 2020 and 5% in 2019. The current dry bulk orderbook indicates that about 30% of the 130 Capesize ships with scheduled delivery from the beginning of November this year will be either LNG dual-fuel capable (~40 ships) or LNG ready (~7).
Newbuilding Prices
The contracting activity of bulkers YTD counts a peak of orders: the highest in absolute number of ships ordered since 2018. Newbuilding prices are also climbing in all main ship sizes and they are trending higher than the 2018 levels, while the increase of prices has triggered an annual rebound of 30% in the levels of the Chinese newbuilding price index.
The accelerated momentum evident in the busier newbuilding ordering has led the Capesize price assessments for a 185k dwt ship to be standing at the first days of November at around US$60m, which marks a 28% increase compared to 2020 levels. Newbuilding price assessments during the years 2019 and 2020 were standing at around US$49m and US$47m respectively, whereas in the year 2018, despite an overall higher ordering interest, Capesize newbuilding prices did not exceed levels of US$50m.
China Focus
At a quick glance at the newbuilding pricing sentiment of Chinese shipyards, Capesize vessels have seen a 25% rise, which is very near to the overall increase of newbuilding pricing sentiment. This underlines the fact that the burden of negotiations for the placement of new orders for dry bulk ships is centered at Chinese shipyards; statistics released by China Association of the National Shipbuilding Industry revealed that the newly received orders of Chinese shipyards for all vessel types surged in the first three quarters of the year by a significant 223.3%, compared to the same period last year.
Our Dry Bulk Newbuilding Chartpack illustrates the annual increase in the Chinese newbuilding price assessments, which is indeed noticeable not only in the Capesize segment, but also in the Kamsarmax and Ultramax ship sizes. The higher contracting activity has pushed the pricing sentiment upward with October and November signalling strong flow of new orders.
What is also interesting is that the annual rise of newbuilding prices in the Handysize segment is higher in percentage points than in the Capesize segment. YTD contracting activity comes first in the Kamsarmax and Ultramax asset classes, then in the Handysize segment and lastly in Capesize vessels. The month of October ended, however, with no reported orders for Handysize ships and the days of November still have not brought fresh activity in the smaller bulker ships.
In the Ultramax segment, we saw the order for eight 64,000 dwt Ultramax bulk carriers at a cost of US$32m per unit placed at Zhoushan based Cosco Shipping Heavy Industry from BoComm Financial Leasing. New Dayang Shipyard has signed an order for nine 60,000 dwt dry bulkers from CDB Leasing for just US$29m per vessel, which is said to have been signed a few months ago. Between these two newbuilding contracts, the upward momentum of contract prices is indeed evident as both have been placed at the same yard within this year.
Orderbook and Fleet Growth
The dry bulk orderbook is estimated to stand at the historically low 6% of the existing fleet and reflects the quite reasonable concerns of industry stakeholders regarding the fuel and technology solutions needed to meet the green target of the shipping industry in the next few years. For the 10 months of this year, the dry bulk fleet has seen deliveries of around 32mil dwt compared to 49mill last year. The scrapping activity is standing a little below 5m dwt, from 16m dwt in 2020, as the rally of freight rates has created a subdued appetite for demolitions.
The total dry bulk fleet is currently estimated at 940m dwt, however, expectations for the net fleet growth do not discourage shipowners from placing new orders as demand for key dry bulk commodities and, therefore, for the vehicles that carry those, is expected to outstrip supply in a mid-term scope and support healthy profit margins for shipowners.
Dry bulk seaborne trade is estimated to grow by 4% (in terms of overall volume transported) this year, mainly driven by a rebound in coal and minor bulk commodities, whereas fleet expansion is projected to slow to 3.5% in dwt tonnage for this year. Going forward into 2022, estimates provoke optimistic figures for supply and demand balance growth, with 2.4% of dry bulk trade growth and 1.5% fleet expansion. Looking further ahead and into 2023, an even lower fleet growth rate is estimated to take place (circa 1%). Uncertainty around future design and propulsion technology will remain but demand for new ships will continue as EEXI requirements are expected to limit trading capability of older ships.