Investors can take a look at the Baltic Dirty Tanker Index day-to-day to see whether conditions are improving. But shipping rates are volatile, which sometimes makes it hard to judge whether rates are rising or not overall. Ship prices, on the other hand, aren’t. Plus, because each ship can cost more than $100 million, managers tend to be careful when trading, just like anyone would when buying their first home.
Newbuild prices are on the rise
According to RS Platou, an international ship and offshore brokers and investment bank, newbuild prices for crude tankers have been rising since the first half of 2013. This suggests managers have somewhat become more optimistic during 2013, expecting rates to rise or generate positive returns in a few years. Indeed, last year’s price increase coincided with large VLCC orders. Recent transactions show newbuild prices rose from January to February for VLCC and Suezmax vessels: $96.5 million to $97.5 million for VLCCs and $64 million to $64.5 million for Suezmax.
Ten-year-old vessels have also rebounded, albeit slightly later than newbuilds. Because second-hand vessels can be delivered to shippers within a few months, price movements more reflect managers’ expectation of near-term industry prospects. Since movements in second-hand vessels have both lagged and led newbuild prices in the past, it’s important to take a look at both prices in the context of other fundamental indicators.
Impact on crude tankers
Prices for ten-year-old crude tankers jumped in February, reflecting managers’ confidence that shipping rates will rise further. Combined with data on newbuild prices, we could say the outlook for crude tankers is improving. If prices continue to rise over the next few months or quarters, the Guggenheim Shipping ETF (SEA) and crude tanker owners such as Frontline Ltd. (FRO), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), and Teekay Tankers Ltd. (TNK) should benefit.