Tanker prices have managed to edge out further falls during 2013, ending a nearly four-year downturn cycle, which began back in 2009. As such, average tanker prices ened 2013 down by a mere 0.42% on the year, although on a sector by sector basis, there's evidence of mixed performance. This according to the latest report from US-based Mcqulling Services, which noted that the end of the year momentum could have set the stage for what may be the first positive year since 2008 registering a current 5% return based on January 2014 levels over 2013 averages.
VLCC
According to the report, VLCCs saw mixed results across newbuilds and second-hand tonnage year-on-year. Overall, the segment trended slightly downwards by 0.2% year-on-year using average annual prices. The end of the year saw increased spot market activity and renewed optimism, which has supported asset prices heading into 2014. "Current asset prices represent a 6% increase over 2013 average levels with newbuilds and 10-year secondhand tonnage increasing 6% and 16% respectively. In contrast, asset prices for five-year secondhand tonnage are down 4% from 2013 levels. Our proprietary seasonal ratios show the experiential adjustments in rates over the course of the year. Using a basis of one, we record the observed premium or discount on a monthly basis by using a multiplier factor. For example, a 30% increase in December rates from the annual average rates will indicate a 1.3 seasonal factor for December. As indicated in our previous industry note, a seasonal uptick and securing of tonnage ahead of the holidays traditionally helps to push up both spot rates and subsequently asset values in the latter half of the year", Mcquilling noted.
SUEZMAX
Meanwhile, "asset prices for the Suezmax sector underperformed the industry average, registering a 4% drop in average annual prices year-on-year. Significant weakness was predominant in older secondhand tonnage as 10-year average annual Suezmax asset prices were down 8% year-on-year (12-13). Ten-year secondhand tonnage experienced the most negative volatility as compared with newbuilds and five-year old vessels. Terminal restrictions in West Africa, along with special survey costs, are the primary reasons for the poor performance. Older vessels will be more limited in their load and discharge options than their younger peers, decreasing the availability of demand for these vessels. Additionally, in a down market when newer tonnage is available at softer levels, potential buyers of older tonnage may be less willing to pay up for an older vessel due its second or third (and typically more expensive) special survey", said the company's report.
AFRAMAX/LR2
Meanwhile, according to Mcquilling, "average annual Aframax/LR2 prices remained flat year-on-year, recording a slight decrease of less than 1%, despite rate volatility throughout the year. Disruption in Libyan production pushed rates lower in the Mediterranean; however, a lack of available tonnage and weather disruption in the Carib/USG pushed rates significantly higher toward the end of the year. Similar to its peers, the Aframax class has seen scrap values, as a percentage of their market value, increase significantly over the last five-years. The significant increase in percentage terms may be explained by higher steel prices, which have increased by approximately 25% over the last five-years due to improving demand, particularly from China. However, a movement towards historical trends would likely indicate a future increase in either asset prices, a decrease in the price of steel or some combination of the two. In the upcoming 2014-2018 Tanker Market Outlook, McQuilling incorporates steel prices in the model for asset price forecasting as we have established a very strong correlation using our proprietary quantitative analysis", Mcquilling noted.
PANAMAX/LR1
Similarly, according to the analysis, "the Panamax/LR1 sector has shifted gears, with a focus on coated ships, as more than 80% of orders in the last five-years have been for LR1s. Our analysis shows LR1 fixtures for CPP cargoes out of the US Gulf almost doubled year-on-year, which enabled owners to benefit from economies of scale. Comparing current prices to 2013 average levels, we see positive growth of 7% highlighted by a 12% rise in 10-year secondhand tonnage. We examine the dynamics between ton-mile demand and the orderbook in our 2014-2018 Tanker Market Outlook. Our analysis indicates a dis-connect between current prices and market fundamentals", Mcquilling noted.
It concluded by mentioning that "given the robust interest in the sector over the last two years, it should come as no surprise that the MR tanker class performed better than the rest of its peers, returning a 4% growth in average annual asset prices year-on-year. Looking at current prices compared to 2013 average levels, we see an increase of 10%. We have seen a massive move for MR tankers including a wave of public offerings and private equity investment into the space. Current newbuild prices are up 9% as compared to 2013 average levels".
VLCC
According to the report, VLCCs saw mixed results across newbuilds and second-hand tonnage year-on-year. Overall, the segment trended slightly downwards by 0.2% year-on-year using average annual prices. The end of the year saw increased spot market activity and renewed optimism, which has supported asset prices heading into 2014. "Current asset prices represent a 6% increase over 2013 average levels with newbuilds and 10-year secondhand tonnage increasing 6% and 16% respectively. In contrast, asset prices for five-year secondhand tonnage are down 4% from 2013 levels. Our proprietary seasonal ratios show the experiential adjustments in rates over the course of the year. Using a basis of one, we record the observed premium or discount on a monthly basis by using a multiplier factor. For example, a 30% increase in December rates from the annual average rates will indicate a 1.3 seasonal factor for December. As indicated in our previous industry note, a seasonal uptick and securing of tonnage ahead of the holidays traditionally helps to push up both spot rates and subsequently asset values in the latter half of the year", Mcquilling noted.
SUEZMAX
Meanwhile, "asset prices for the Suezmax sector underperformed the industry average, registering a 4% drop in average annual prices year-on-year. Significant weakness was predominant in older secondhand tonnage as 10-year average annual Suezmax asset prices were down 8% year-on-year (12-13). Ten-year secondhand tonnage experienced the most negative volatility as compared with newbuilds and five-year old vessels. Terminal restrictions in West Africa, along with special survey costs, are the primary reasons for the poor performance. Older vessels will be more limited in their load and discharge options than their younger peers, decreasing the availability of demand for these vessels. Additionally, in a down market when newer tonnage is available at softer levels, potential buyers of older tonnage may be less willing to pay up for an older vessel due its second or third (and typically more expensive) special survey", said the company's report.
AFRAMAX/LR2
Meanwhile, according to Mcquilling, "average annual Aframax/LR2 prices remained flat year-on-year, recording a slight decrease of less than 1%, despite rate volatility throughout the year. Disruption in Libyan production pushed rates lower in the Mediterranean; however, a lack of available tonnage and weather disruption in the Carib/USG pushed rates significantly higher toward the end of the year. Similar to its peers, the Aframax class has seen scrap values, as a percentage of their market value, increase significantly over the last five-years. The significant increase in percentage terms may be explained by higher steel prices, which have increased by approximately 25% over the last five-years due to improving demand, particularly from China. However, a movement towards historical trends would likely indicate a future increase in either asset prices, a decrease in the price of steel or some combination of the two. In the upcoming 2014-2018 Tanker Market Outlook, McQuilling incorporates steel prices in the model for asset price forecasting as we have established a very strong correlation using our proprietary quantitative analysis", Mcquilling noted.
PANAMAX/LR1
Similarly, according to the analysis, "the Panamax/LR1 sector has shifted gears, with a focus on coated ships, as more than 80% of orders in the last five-years have been for LR1s. Our analysis shows LR1 fixtures for CPP cargoes out of the US Gulf almost doubled year-on-year, which enabled owners to benefit from economies of scale. Comparing current prices to 2013 average levels, we see positive growth of 7% highlighted by a 12% rise in 10-year secondhand tonnage. We examine the dynamics between ton-mile demand and the orderbook in our 2014-2018 Tanker Market Outlook. Our analysis indicates a dis-connect between current prices and market fundamentals", Mcquilling noted.
It concluded by mentioning that "given the robust interest in the sector over the last two years, it should come as no surprise that the MR tanker class performed better than the rest of its peers, returning a 4% growth in average annual asset prices year-on-year. Looking at current prices compared to 2013 average levels, we see an increase of 10%. We have seen a massive move for MR tankers including a wave of public offerings and private equity investment into the space. Current newbuild prices are up 9% as compared to 2013 average levels".