Bulk carrier asset values predicted to rise by 20%

“Based on implied returns from current spot rates, we believe dry bulk vessel values could see increases of 20%, with additional increases possible should the firming continue,” the report’s author Omar Nokta said.
At the moment, capesize rates of around US$35,000 per day were producing one-year time charter returns of over 20% against price assessments for five-year-old capes of US$49m, the report said.
This would push capesize values up to US$60m. By comparison, panamax rates of about US$20,000 per day were also providing 20% returns on modern secondhand vessels, currently assessed at US$29m.
Panamax values could be pushed up to US$35m and supramax values could increase to US$32m, Dahlman predicted.
“Such an increase would go a long way in improving the overall capital structures of dry bulk companies and could lead to them returning to compliance with loan-to-value covenants sooner than expected,” Mr Nokta said.
The bank’s overall outlook for the dry bulk market was also “growing more positive” as market dynamics had moved in a more positive direction in recent weeks.
Dahlman predicted that steel demand would increase as government stimulus packages were put into practice around the world. This increase in demand would lead to higher steel prices, which are around US$500 per tonne at the moment.
“But there is likely to be a lag between a firming in steel prices and an increase in steel production, which should widen steel mill margins considerably,” the report said.
“We believe dry bulk rates would benefit substantially from such potential wider steel margins as steel mills rush to secure cargoes and vessels to lock in gains.”
The bank also said that increasing Chinese iron ore inventories, which were greater than 70m tonnes, were not excessive.
The amount of ore being imported was “appropriate” considering that monthly steel production in the country had increased to 45m tonnes, up 5m tonnes from the start of the year.