Annual growth of VLCC tanker fleet could be negative over the next few years claims shipbroker

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Category: General
Published on Tuesday, 11 February 2014 07:05
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Monday, 10 February 2014 | 00:00

A total of 52 VLCCs were ordered in shipyards last year, the highest number since 2010, a trend which has "spilled over" into 2014, with already 6 new VLCC orders placed during the month of January. According to the latest weekly report from London-based shipbroker Gibson, "about half of this investment in VLCCs is coming from the Asian shipowners to secure tonnage for domestic crude shipments and/or fleet replacement programs. The remainder of orders placed were by “Western” interests, with many backed up by funding from international investors".

Besides VLCCs, a strong interest was also evident in the MR and LR2 product tanker ordering business over the course of last year, with investment in new tonnage mainly focused on these two types. "Orders in each of these categories reached their highest level since 2007. Shipowners’ confidence in product tankers was supported by in creasing trade and the anticipated further growth in demand amid expanding refining capacity in the Middle East and India".

The shipbroker noted that "at first glance, greater interest in VLCCs is surprising. The sector is clearly overtonnaged, following 5-7% p.a. growth in fleet size over the past four years. The problem of oversupply is not expected to be resolved anytime soon, as there are pressures on demand such as declining US crude import requirements and less crude coming out of the Middle East following the start-up of export orientated refineries".

"However, asset prices are telling a different story. The price for a newbuild VLCC declined to a low of $89.5 million in mid-2013, downby a staggering 44% from their level in early 2008. Although VLCC values have moved up over the past seven/eight months, with current indications of around $98-99 million, current levels are still well below the peak. In the longer run, there are also some promising signs in terms of the VLCC fundamentals. New ordering has been very limited during the 2009 -12 period (with exception of 2010) and so deliveries over the next three/four years will be well below those witnessed since 2008. Moreover, trading conditions for the first generation of double hull VLCCs (15 years+) are becoming increasingly more challenging, meaning that there will be greater pressure to send these ships for demolition. If indeed we see higher scrapping over the next few years, this could translate into VLCC fleet going into a slight decline over the next few years! With time, demand is also anticipated to recover (following the diversion of some of the Middle East barrels into domestic refineries) expanding the crude trade from West Africa and the Caribbean/South Ameerica to Asia", Gibson noted.

It concluded its analysis by mentioning that "in other words, improving VLCC fundamentals in the medium to long term coupled wiith what looks like a very attractive price, could justify increased levels of investment in new VLCCs. However, “everything in moderation” is the key here, if the VLCC market does not want to face another major oversupply problem several years down the line".

Meanwhile, in the crude tanker market this week, in the Middle East, "as the market bottom be came solidly tested, VLCC Charterers were provoked into a sustained spell of bargain hunting which eventually moved the market back into Owner’s favour by nearly 10 ws points to the East. Hopes of a repeat sharp spike seen in January are slight, however, on ample forward availability, and the absence of any support from the presently weak smaller sizes both here, and in the Atlantic . Currently rates stand at around ws 48.5 East and ws 30 to the West via Cape. Suezmaxes merely bumped along on spasmodic inte rest and plentiful tonnage. Rates settled in to a ws 70/75 East, and ws 30/35 saddle to the West, where they are likely to remain for some time.  Aframaxes swam in lazy circles around an 80,000 by ws 110 centre point to Singapore, and that is unlikely to shift much over the coming period", Gibson said.

In the Mediterannean, "lowest levels of the year so far for Aframaxes, with present rates of 80,000 by ws 80 cross Med in sharp contrast with the ws 30+ peaks of only a short while ago. Unfortunately for Owners, although some weather disruption may start to help out, there is virtually no chance of anything nearly equal over the near/medium term horizon. A similar situation for Suezmaxes where only modest enquiry hit up against plentiful supply, driving rates from the Black Sea down to around 140,000 by ws 62.5 for Europe with around US$ 3 million the mark to Singapore", the shipbroker noted.

Finally, in the North Sea, "a big hit for Aframaxes here - from 80,000 by ws 170 to ws 95 cross UKC, and the pain isn’t over yet. Charterers have things well under control, and won’t give up their grip easily. Suezmaxes saw less, both in volume -and rate. Levels Transatlantic should now move at around 135,000 by ws 60, though a Fuel Oil movement Baltic/SKorea was covered at a respectable 4.25 million. VLCCs saw little as the Fuel 'arb' closed to the East. Owners indicated at down to US$ 5.25 million, but with no easy takers. Nikos Roussanoglou, Hellenic Shipping News Worldwide