Mining giant Anglo American has snapped up options for four LNG-fuelled capesize bulker newbuildings at state-owned Shanghai Waigaoqiao Shipbuilding (SWS) as yard prices continue to soar.
They are part of an original order for two 190,000-dwt capesizes placed at the Chinese yard last year, which had four options attached that it has now exercised.
But since then, yard prices have spiralled in response to a hike in the cost of steel plate.
Industry sources estimate Anglo American has made a paper profit of about $90m on the six newbuildings as the bulkers would cost at least $75m apiece in the current market.
The company is reported to have paid slightly more than $60m each for the LNG-fuelled vessels.
Industry players do not think Anglo American will flip the capesizes for a profit but will operate the vessels themselves.
SWS declined to comment on its shipbuilding activities, while an Anglo American spokeswoman said her company does not comment on commercial matters.
A Chinese shipyard official said the cost of Chinese steel plate has almost doubled to CNY 7,400 ($1,152) from the end of last year’s CNY 4,000, which represents an 85% jump.
Steel accounts for about 25% to 30% of shipbuilding costs. The Chinese yuan has also strengthened by 4% against the dollar, which has also contributed to the price increase.
Anglo American is not the only company to take up comparatively cheap optional vessels as prices have increased.
Taiwan’s U-Ming Marine Transport has exercised options on two 210,000-dwt newcastlemax bulkers at Qingdao Beihai Heavy Industry at about $50.5m.
Shipbuilding players said yards are now looking for prices closer to $60m for a similar newbuilding due to rising shipbuilding costs.
No-brainer
Newbuilding brokers said taking the cheap options is a “no-brainer” for owners and that there would be opportunities for those that ordered last year to sell on their ships with continued strong demand for newbuildings.
The gap between the price of optional newbuildings and current yard prices is indicative of the profits that could be made.
Some shipping companies have already taken advantage of rising newbuilding prices to do so.
Capital Maritime & Trading was reported to have sold four 13,100-teu containership newbuildings that are under construction at Samsung Heavy Industries to Wan Hai Lines. The Greek owner was said to have locked in nearly $32m in profit from the deal as it ordered the vessels at $103.5m each and sold them for $111.4m apiece.
Yards facing a loss
But while some owners are looking at potential profits, yards could be facing a loss. They will have no choice but to build optional vessels at much higher steel prices than they had expected when they took the orders.
Shipbroker Clarksons said the shipbuilding industry is facing a dilemma as the surge in steel plate prices coincided with the increased appetite for newbuildings.
It described the rising steel prices are a “complicating factor” in the newbuilding market.
Pressure points
“Both the rise in steel and the increase in demand for new orders is putting upwards pressure on newbuilding prices and there is likely to be a gap up in prices — especially as there are reports that shipyards in certain cases are unable to provide price quotes to prospective shipowners,” said Clarksons.
Including the latest options, Anglo American is now behind orders for a total of 10 dual-fuel bulkers at SWS for delivery between 2023 and 2024. Four were chartered from U-Ming for 10 years, with the remaining six owned by Anglo American.
The miner is switching to LNG-fuelled tonnage as a part of its sustainable mining plan. It has set a goal of achieving a 30% reduction in net greenhouse gas emissions by 2030 and being carbon neutral by 2040. Anglo American lifts around 70m tonnes of cargo annually.
