Looking at second-hand and resale market, where there are good bargains.
Shipping Corporation of India (SCI), India’s largest in the sector, plans to order 37 vessels in two years, spending about $2 billion (Rs 9,300 crore) to benefit from the fall in ship prices. Currently the government-owned company has 77 vessels, for a capacity of 5.8 million deadweight tonne (Dwt).
“Prices for ships have already come down and we see a possibility of it further coming down for some more time this year,” said S Hajara, chairman and managing director. “We have decided to look for second-hand and resale vessels, where prices have come down more than the newly built ones.”
According to industry estimates, prices for newly-built very large crude carriers (VLCCs) and capesize bulk carriers at yards had dropped by 30 per cent to $100 million (Rs 460 crore) and by 40 per cent to $56 million (Rs 250 crore), respectively, in the past two years.
Besides, there are resale ships available at yards which are coming cheaper. It takes a year or two to deliver a new vessel. Resale ships are those ordered by companies during the boom years of 2007 and 2008, when the Baltic Dry Index, the benchmark for the freight rate index of dry bulk carriers touched an all-time high, to 11,793. Many such orders are getting cancelled at yards, as some of the companies succumb to the downturn in the shipping cycle.
The Baltic Dry Index was at 2,661 on Wednesday. This is the time SCI plans to complete most of its order.
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“The demand for tankers has actually started increasing after two years of contraction in world oil consumption and consequent world oil trade movement,” said Hajara. “Similarly, on the dry bulk side, particularly on China’s strength of steel making, the demand is definitely growing and it is going to be quite healthy this year.”
According to the company, the demand in the tanker segment is expected to grow by 2-2.5 per cent, while the supply of vessels is expected to grow by 3.5 per cent. In dry bulk, demand is expected to grow at 8-8.5 per cent, but supply of vessels is expected to grow by 10 per cent.
“In the dry bulk, supply pressure is going to continue till the end of 2011; the Baltic Dry Index would be range-bound between the 2,500 to 5,000 index levels,” he estimated. “Resale assets are workable at the prevailing freight rates.”
In December 2005, the company had announced that it would buy 76 vessels, spending Rs 15,000 crore by the end of March 2012. The plan got delayed, as ship prices started rising during the boom period. SCI has so far received nine ships, including one resale ship from the yard. Besides, orders for 30 ships have been placed and delivery is expected in the coming years. It now plans to complete the order of 37 ships, to conclude the earlier plan on time.
The company got Navratna status in 2008. Prior to that, it needed approval from the Cabinet Committee on Economic Affairs for spending over Rs 500 crore. The Navratna status enabled it to buy ships with just board approval.
The company’s stock closed Rs 151.7 a share on the Bombay Stock Exchange on Thursday, losing 0.5 per cent. The Sensex, the benchmark index of the exchange, closed at 16,327, losing 0.6 per cent in the day.