Demand for tankers not the one owners would wish for
Tanker owners have been plagued with oversupply issues, while demand hasn't been that strong, in order to help absorb all those vessels. According to a recent report from BIMCO, "we see a mixed picture from one trading area to the next and from crude oil to products. Clearly Handysize product tankers trading Singapore – Chiba have just recently escaped the negative freight rates, while the TC2 cross-Atlantic gasoline-trade have enjoyed several days on top of USD 10,000 per day (note that all rates are based on benchmark Baltic Exchange speed and consumption figures).
As a contrast to this, the benchmark average earnings for VLCCs on the routes from Middle East Gulf to US Gulf and Japan that have been under pressure throughout the year but pushed to the floor during August" the report said.
It added that the fourth quarter is traditionally a stronger one for tanker shipping and with such a vast room for improvements, the demand side have cut its work out – but prospects appear to have turned to the dark side – at least for now.
"Following the very strong oil import figures from China in April and May, the import level has come off somewhat, in particular in August. However, Chinese crude oil demand remains the mainstay in the market, with prospects boosted recently by a sharp drop in inventories. China’s commercial crude inventories fell 2.5% by the end of August from a month earlier. Across the pond the picture is somewhat different, as 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" it noted.
Meanwhile, although it still remains to be officially confirmed, the eventual ordering by Chinese interests of up to 50 VLCCs with an order value of USD 4.5 billion (USD 90 million each) has stirred the market. The move that will allow the world’s biggest energy consumer to take more control over its supply chain is set to be placed by state-owned shipping companies at state-owned shipyards. The top Chinese state-owned VLCC owners (world’s no 14, 15 and 16) are most widely mentioned to be involved. According to BIMCO, "the building of 50 new VLCCs is bad news for an already oversupplied market, and one questions what good it will do to the shipyards – is it merely window dressing? It will certainly not fill the capacity, so there must be more to it!"
In the shipbuilding market for tanker, four years ago, the shipbuilding order book reached its peak. At that time, shipyards held on to confirmed orders for a total of 11,305 vessels, according to CRSL. The orders were divided between 955 active shipyards. The report mentions that today, 4 years later, the world’s shipyards are facing the wall. "At the start of September, the order book stood at 4,795 vessels, whereas the number of active newbuilding yards has reverted to 538, a drop of over 40% in the past 4 years. Faced with a lack of new business in conventional marine sectors, many builders have to explore other options in order to “stick around”. Re-focusing the yards to take care of retrofitting, general repairs or outright recycling of tonnage are amongst the new adventures that are somewhat related to newbuilding activity. But at the end of the day, a potentially large number of shipyards have to close down, which will limit the potential number of newbuildings, also with regard to tankers" it concluded.
In a separate note, highlights the oversupply problems of the tanker market, shipbrokers Gibson mentioned that thankfully for owners, newbuilding deliveries are expected to drop after the first quarter of 2013. The fall is estimated to be about 30% for crude carriers and almost 50% for product vessels, in deadweight terms. "At the same time, asset values have continued to tumble. The implementation of a whole tranche of legislation over the next few years is likely to accelerate the removal of tonnage," the note said.
"However, with current earnings offering little encouragement for new investment, we do not envisage an imminent kick start to another round of fresh ordering."
The newbuilding tanker deliveries - after peaking in 2009 with more than 400 crude and product tankers entering the market - will fall close to 270 this year, the report said.
"Despite this significant fall in number, the deadweight tonnage total has remained fairly constant for the past three years," the report said, adding that around 700,000 dwt would be added this year on top of last year's total. This year close to 59 VLCCs and 60 Suezmax tankers - one newbuilding vessel entering the market every six days - would be delivered, according to the report.