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Monday, December 11, 2017

Tanker supply/demand picture for ever changing

The tanker newbuilding orderbook was some 25% higher at the end of April this year than it was at the start of the year, with 102.6m dwt of tankers on order compared to 81.8m four months before. Over the same four-month period, the steady stream of tanker deliveries has taken the existing fleet up by 2.25% from 339.9m dwt to 347.6m dwt. 

London shipbroker Simpson Spence & Young (SSY) goes on, in its May Monthly Shipping Review, to put this surge in tanker contracting in context. In fact, it says, it is forecasting ‘only’ 16.5m dwt net tanker fleet growth this year, compared to 22m dwt actual in 2005 and 20.4m dwt forecast in 2007 – this is based on 2007 deliveries of 29.4m dwt, the highest annual figure since the 40.5m dwt of 1976, it claims, and on a modest rise in the current low figure for scrapping/deletions. 

Why the dip in net tanker fleet growth? Because new ship deliveries are scheduled at ‘only’ 24.5m dwt – down on 2005’s actual 28.8m (and 2007’s forecast 29.4m). In fact, says SSY, net fleet growth in general remains very high by historical standards, because tanker demolition is very low – the broker projects that fleet removals will total just 6.5m dwt in 2006, the lowest annual figure since 1997. 

So if SSY’s forecasts are fulfilled, tanker supply would undergo a rise of more than 25% from 2004 through 2007 inclusive. And the risks to its forecast appear limited, it believes, since the level of confirmed orders is high and the fleet is relatively modern, meaning limited potential for the scrapping of older vessels – “even if freight markets weaken significantly and remain far softer than in the past three years”. 

However, at the same time, says SSY, the latest U.S. Department of Energy forecast maintains that “crude oil prices will remain elevated through 2007”; and the International Energy Agency last month reduced its oil demand forecast for the seventh consecutive month to 1.47m bbls/day (it was at 1.78m at the start of the year) – mainly due the strength in crude prices. This equates to an annual increase of some 1.8% (it was 1.3% in 2005). 

This rush of newbuilding contracts evidences a supreme confidence in the longer-term tanker market, despite uncertainty over whether younger single hulls will phase out in great numbers in 2010 or whether they will be able to continue trading until 2015. But the course of the tanker market in the shorter term looks to be drawing less confidence – the recent reported sale of MOSK’s single hull VLCC Kaimon (258,000 dwt, built 1991 Japan) to LG Caltex for USD 39m contrasts with the sale of the sister vessel by Great Eastern to Titan this time last year for USD 60m. 

Contact: Bill Box