The demand situation in tanker shipping is anything but formidable. We see a mixed picture from one trading area to the next and from crude oil to products. Handysize product tankers trading Singapore – Chiba has just recently escaped the negative freight rates, while the TC2 cross-Atlantic gasoline-trade has enjoyed several days on top of US$ 10 000/day (note that all rates are based on benchmark Baltic Exchange speed and consumption figures).
The average earnings for VLCCs on the routes from ME Gulf to US Gulf and Japan have been under pressure throughout the year but pushed to the floor during August. The fourth quarter is traditionally better for tanker shipping and with a vast room for improvements, the demand side has cut its work out – but prospects are negative – at least for now.
Chinese crude oil imports have dropped in recent months, but with a recent sharp drop in inventories, prospects are looking better. In the US, crude oil stocks continue to hover above 5-year range with little potential for anything noteworthy to happen. Despite the forward curve being in contango (future price above spot delivery price), it’s not steep enough to be overly bullish about a sudden increase in imports.
The 1996-built, doubled-hulled Suezmax crude oil tanker Hellespont Trooper has reportedly just been purchased for US$ 11.7 million (source: Intermodal). With a current demolition price at US$ 420/ltd, that could return US$ 9.3 million to the owner (according to VesselsValue.com). Assuming six years of remaining commercial life, the vessel is thus valued at US$ 2.4 million for on-going trading (US$ 400 000/year).
Three years ago such a vessel was valued at US$ 34.5 million, which corresponded to a value for the remaining commercial life at US$ 2.9 million/year, considering a scrap price of US$ 8.1 million. It is astonishing to see that the deteriorated belief in the future market has shaved off 86% of the on-going trading value of this representative Suezmax tanker.
Over the past two months the product tanker fleet has contracted, as more tankers have been scrapped or removed from the fleet than have been delivered into it by means of newbuilt tonnage. Following that upbeat news, the current status is that the product tanker fleet has grown by just 1.2%.
Note that the last three orders, settled in July and August, were for ECO-ships, with a claimed bunker fuel saving of 5 - 7 t compared to the average consumption of the current fleet. Reportedly it should lower cost by US$ 2000 – 4000/day, calculated at normal service speed of 14 knots.
These new contracts have presumably been made on attractive financing conditions and they should contribute positively to a lowering of the involved owner’s tanker fleet-wide average costs. Note that the ship finance market is increasingly a place only for the top owners, with whom the banks still want to do business – if they want to do any shipping business at all.
The product tanker order book to active fleet ratio now stands at 10.9%. The same ratio for the crude tanker segment stands at 13.1%.
Led by falling demand for oil products in the US, MR product tanker earnings in the Atlantic basin have been particularly poor. In H1 2012, US gasoline imports dropped 22% compared to the same period last year. As the PMI-index for the important US manufacturing sector has now been below the key 50-threshold for three months running, the outlook remains poor for US product demand. On the other hand, the September numbers for the ISM index show a reversion to a growing trend, possibly following the QE3 programme.
Please note that our below forecast does not take into account the effect of geopolitical issues.
Charter rates for crude and product tankers remain uninspiring and sideways moving, as has been the case throughout the year. Product markets appear currently stronger West of Suez than East of Suez; a pattern that is likely to stay around in the shorter term.
BIMCO expects that average earnings for all the three crude oil tanker segments will stay around US$ 10 000 – 20 000/day.
Handysize and MR clean rates are expected to enjoy a bit of tailwind driven by a better performance in the manufacturing sector, primarily West of Suez. Freight rates are suggested to be around US$ 4000 – 12000/day. BIMCO expects earnings on benchmark routes for LR1 and LR2 from AG going East to endure slowly sliding rate levels along the seasonal pattern in the interval of US$ 1000 – 11000/day.
Written by Peter Sand, BIMCO.
This is the third of a four-part summary of the BIMCO Shipping Market Overview & Outlook 2012-13. The full report can be accessed here
Read the article online at: https://www.worldcement.com/europe-cis/23102012/bimco_tanker_shipping_part_3/