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Tuesday, December 12, 2017

POINTS OF VIEW - Positive outlook for 2004 – enjoy while you can!

The feeling of warm euphoria at such a good year in almost all shipping sectors was strong in the air during London’s Christmas party season. Seen in the cold early January light, do things look any different? Looking at a number of broker reports and forecasts, the bottom line seems to be that few can see an early end to the good times, but some point up factors which might have a dampening effect.

Some of the end-year comparisons between end 2002 and end 2003 highlight trends that look likely to continue this year.  The VL/ULCC fleet grew from 425 units to 434, but VL/ULs over 25 years old fell from 40 to just 16. At the same time the fleet’s double hull percentage increased from 48% to 56% for VLs and from 51% to 62% for aframaxes, according to EA Gibson. That trend sets the scene for an increasingly modern fleet.

The same goes for tanker newbuilding deliveries, which increased from 21.9m dwt (150 units) in 2002 to an estimated 30.8m dwt (287 units) in 2003 … and there are another 26.6m dwt (263 units) to deliver in 2004. However that means another big wedge of tonnage to absorb on a market that might be less accommodating in tonne-mile terms. Tanker recycling dropped from 18.9m dwt to 17.8m dwt, with VL/ULs dropping even faster from 11.3m to 9.1m dwt – but then who is going to scrap a vessel that can generate $1-2m profit from one voyage AG/Thailand?

Tanker ordering was another big deal for 2003 with over 50m dwt of new orders placed compared to just over 20m in 2002. With berths now looking pretty full through 2006 and into 2007, and with prices having firmed over the last 12 months from $64m to $75m for a VL and from $35m to $41m for an aframax, the feeling in s&p circles is that more potential buyers are going to be soft pedalling as they try to get a better feel for how the freight market is going to develop … and where newbuilding prices might go from here - Clarksons points out that world shipbuilding output will climb to a new record level of 22.5m cgt in 2004, beating the previous record of 21.2m cgt in 1977.

Clarksons’ Martin Stopford points out another record for 2003 that actually makes for a positive trend for 2004: laid up tanker and dry cargo tonnage had fallen to just 0.9m dwt in December, the lowest level since January 1971. With rates already firm and the spot market volatile, that lack of any tonnage cushion makes for an exciting ride this year.

Fearnleys’ Jarle Hammer also stays realistic. Although positive that seaborne oil trade volumes will show some 2.5% growth in 2004 and 2005, he believes that the crucial tanker tonne-mile development is likely to remain rather flat after having seen roughly 6% growth in 2003. That would be on the back of forecasts of an increase in non-Opec production (particularly FSU countries) at the expense of Opec (particularly Middle East) exports.

There is also a feeling in the market place that, while China has been a major driving force behind both wet and dry bulk shipping markets, the rest of Asia is also looking very positive. Asia’s growth rates have been strong, says Clarksons, with the trade-weighted Pacific Growth Index touching 8% earlier in the year and now, after a SARS-related wobble, climbing back up to 6.2%. “Suddenly optimism in the world economy has picked up and things look very positive for 2004, as indeed they do in the US and Asia,” says Stopford. But he admits that Europe is still something of a problem in comparison.

The same reasoning is behind Lorentzen & Stemoco’s bullish view of the tanker market. Large and growing Asian crude oil import requirements will ensure that VLCC demand will increase by 4-5% in 2004, it forecasts, since most of the extra volume will be supplied by VLs from the Middle East or West Africa. “The ensuing increase in tanker demand will soak up a large part of the significant number of VLCCs to be delivered in 2004,” it concludes, with a knock-on effect down through the smaller sizes.

All in all, a positive tone for the start of the New Year, seasoned with some gentle reminders that what goes up must come down … sometime. “The outlook for 2004 is reasonably positive,” concluded Stopford in his presentation at the Fortis Bank Christmas Seminar. “The demand side of the market looks good and the supply side, although more pressing than this time last year, looks manageable with a bit of luck. So let’s enjoy it while it’s here!”