- Handysize Sector Faces Consistent Price Declines.
- Secondhand Vessel Prices Remain Above 2016-2017 Levels.
- Current Valuations Show Significant Premium Over Historical Prices.
Over the past few years, geopolitical uncertainty has been a major driver of the global economic environment. The recent U.S. presidential election and the subsequent 25% tariff on steel and aluminum imports have added to this uncertainty. Geopolitical tensions in the past have tended to drive the dry bulk market higher. However, the freight market today is still sluggish, mirroring the situation seen during 2016-2017. Despite the muted market, the fundamental difference is that current secondhand bulk carrier asset prices are still considerably higher than those documented in 2016-2017, reports Break Advisors.
Falling Vessel Prices within the Handysize Market
The Handysize segment has seen a steady fall in ship prices from the beginning of the year. Year-to-date (YTD) statistics reveal declines in all ship age ranges, with steeper falls in older ships. Year-on-year (y-o-y) drops are also evident, demonstrating the ongoing decline in asset values.
The prevailing market conditions are still putting pressure on prices in the downward direction, presenting possible opportunities for investors. However, despite the downward trajectory, secondhand prices are much higher than they have been in corresponding periods with the same freight market conditions.
Comparing current vessel valuations with historical levels
The mean value of a 5-year-old Handysize ship is now $24.5 million. This value is significantly greater than records in 2016 and 2017 when the HS7TC index was at comparable points. At the end of November 2016, the HS7TC index was around $7,000 per day, and a 5-year-old Handysize ship was worth $11.5 million. The current price represents a 113% premium from the 2016 value.
The same pattern was seen in mid-2017 when HS7TC earnings were also approximately $7,000 per day, and the price of a 5-year-old ship was $13.5 million. The present price is an 88.8% increase from the 2017 level. Recently, towards the end of July 2023, when the HS7TC index was $7,167 per day, the price of a 5-year-old ship was $24.5 million—keeping pace with present valuations.
Outlook for 2025
The size of future price corrections is not clear, though a 20-25% fall is a reasonable expectation considering the market liquidity and the volatile geopolitical climate. Both adverse and favorable results are still on the cards, but 2025 might witness greater buyer interest. Investors looking to take advantage of falling prices can look for opportunities in the next year as the market corrects to current economic and geopolitical changes.
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Source: Break Advisors
