NEW SHIPS EXPECTED TO RISE IN PRICE

NEW SHIPS EXPECTED TO RISE IN PRICE

New ship prices will have to move even higher as labor and material costs continue to rise, a top Japanese shipbuilding official warned this week.

But with signs that secondhand prices may have peaked and the current downturn in dry bulk freight rates expected to continue for some time, a number of shipowners believe the recent strength of the shipping market that has helped fuel the surge in construction prices may be about to end.With Japanese shipbuilders busy until end-1992 or early 1993 with an order backlog of 10 million gross tons, costs under pressure and no plans to reopen any yards that have been closed, Kenko Hasegawa, president of the Japan Ship Exporters Association, forecasts a further rise in prices.

Speaking at the opening of Posidonia 90, the major shipping exhibition and conference held every other year at the Port of Piraeus, Mr. Hasegawa said Japanese shipbuilding prices were only just reaching a level at which yards could remain "a going concern." Although nearly all the major Japanese shipbuilders are reporting higher profits for 1989/90, Mr. Hasegawa claimed earnings were still too low to cover new investments or for shareholders to be paid satisfactory dividends.

While refraining from any specific price predictions, Mr. Hasegawa said he does not expect Japan to lose its competitive edge by putting up construction prices. All major shipbuilding countries are under similar pressure, he said, and prices are likely to move higher at yards around the world.

A new Cape-sized bulk carrier of around 120,000 deadweight tons now costs around $45 million, having risen by some $5 million over the past nine months, while the price of a Panamax-sized ship of 65,000 deadweight tons has increased by at least $3 million over the year to between $28 million and $30 million. A tanker owner would have to pay $85 million to $90 million for a single-hull very large crude carrier and probably $100 million for a double- bottom or double-hull vessel.

But while Mr. Hasegawa described the outlook for the Japanese as ''bright," following the recent restructuring of the industry that has brought supply and demand into balance, there are signs elsewhere that market sentiment is shifting.

Mr. Hasegawa admitted that low freight rates remained a major problem and that shipping costs would have to rise before higher new ship prices could be charged. However, freight rates in several sectors are falling.

This is already being felt in the secondhand market where the price of a Panamax-sized ship has dropped by around $1 million from the recent peak. Sale and purchase experts reckon the recent sale by Niarchos Group of two supertankers for a reported $112 million to the Norwegian operator Kosmos A/S may prove to be the best deal of the year.

One of the ships is due to be delivered this week, but Kosmos has since pulled out of another purchase at the very last minute, apparently on the grounds that the outlook for freight rates was not good enough to justify the price of the new ships.

A number of leading owners, brokers and analysts expect dry bulk freight rates to continue to slide for another couple of years at least, while freight rates on the main east-west liner shipping routes remain under pressure.

Marsoft Inc., the Cambridge, Mass.-based firm that has developed software models for forecasting bulk market rates, expects to see a temporary recovery in the dry cargo market later this year. After that, according to Marianne Okland, the company's U.K. representative, dry bulk freight rates are likely to drift lower until 1992 before gradually recovering in 1993 and 1994. The prospect of lower Japanese steel imports is the main factor behind the anticipated downturn.

Greek owners appear to share these views about the market outlook and are in no rush to start reinvesting in ships.

The whole shipping community is keeping a close eye on the behavior of Norwegian and Greek shipowners, who traditionally dominate sale and purchase activity and therefore provide good indicators about market sentiment. Many believe Norwegian owners will be forced to start selling ships very soon as returns from the K/S ship investment funds, that are dependent on asset appreciation, start to diminish as secondhand values slide.