In Hellenic Shipping News 04/05/2015
Suezmax tankers are looking good for a strong 2015 year, before posting a mild downside during 2016, but are poised to accelerate yet again in 2017 on rising deliveries, said shipbroker Charles R. Weber in its latest weekly report. According to the shipbroker, “Suezmax earnings continued to experience surprising strength during the first quarter of the year with an average of ~$46,951/day exceeding our early-January projection by 15%. Through the full year, we have raised our projected average by 6% to ~$37,200/day. During 2016 and 2017 we project averages of $35,375/day and $31,000/day, respectively”, said the shipbroker.
CR Weber also noted that “Suezmax earnings have strengthened in recent months, driven by growth in worldwide crude oil supply, stronger competition in Aframax markets (which are further along in the recovery stage), recent Suezmax favorable European crude imports (driven by stronger refining margins) and a moderating of net fleet growth levels since 2012. Furthering the case against Suezmax exclusion from crude tanker earnings strength, we note that whereas historical correlations between VLCCs and Suezmaxes were in excess of r2 = 0.9, this correlation loosened to r2 = 0.67746 between 1Q13 and 3Q14 while the correlation between Suezmaxes and Aframaxes strengthened over the same space of time to r2 = 0.95496. Since then, VLCCs and Suezmaxes have returned to a close correlation of r2 = 0.992 while those between Aframaxes and Suezmaxes have also strengthened to r2 = 0.967”, CR Weber said.
In terms of forward demand, the shipbroker said that “European refining margins remain strong amid low crude oil prices. Our base case scenario assumes that margins remain high through at least 3Q15, supporting high utilization rates and strong crude imports from West Africa, supporting Suezmax demand. The ramping up of refinery utilization at new plants in the Middle East (with a collective 800,000 b/d of fresh capacity) early during Q3 will likely start to exert negative pressure on European refining margins by early/mid-Q4. However, the impact on European refinery utilization is not likely to be reflected in a reduction of capacity and utilization there until 1H16”.
CR Weber also noted that “sustained high crude production and seaborne supply rates have favored both VLCCs and Suezmaxes heavily. VLCC earnings are poised to remain high and will continue to offer opportunities to Suezmaxes which limit downside for the smaller class. We note recent Suezmax demand gains in the Middle East market, which followed softer Suezmax rates and fresh VLCC rate gains there, as an example thereof. Demand for Aframaxes should stabilize around recent levels going forward, but a contracting Aframax fleet and higher forward LR2 CPP utilization (drawing some existing units and many forward units from the dirty market), combined with sustained infrastructure (ullage) and weather-related delay issues will support earnings strength within the Aframax class and continue to support trading opportunities for Suezmaxes in the smaller class’ markets. Even amid rising US crude production, heavy crude imports should follow stronger refinery utilization (with PADD3 refineries requiring these to maintain processing rates) to support Aframax demand”.
It’s worth noting that “Suezmax supply growth will remain at moderate levels through 2015 and 1H16. We project net 2015 growth of 0.47% and 2016 growth of +3.04%. NB deliveries during 2016 are heavily oriented to Q3 (when 10 units will deliver, compared with 13 during all of 1H16). These units represent downside potential for Suezmax earnings, but we do not envision the full negative impact materializing until 4Q16). An additional acceleration of deliveries will occur during 1H17, when 33 deliveries are projected to take place, based on existing orders and our delivery profile thereof. Any new units contracted in the coming months will likely augment delivery levels, but from 3Q17 (based on yard capacities and expected slippage, delays, etc.)”.
Summarizing its findings and projections, the shipbroker said that “we expect that Suezmax earnings will remain generally elevated during the coming quarters and though 1Q16 will likely average below 1Q15, we expect positive y/y gains through 3Q16, after which the impact of fleet growth will exert negative influence. Substantial crude supply pullbacks remain a relatively unlikely event based on current indications from producers and as an eventual inflection between crude supply and demand growth should occur by mid-2016; in the case of modest pullbacks, unwinding of crude in fixed storage (Saldanha Bay, etc.) should limit the impact on tanker demand”.
