In Hellenic Shipping News 31/01/2017
Newbuilding deliveries are set to spike this quarter across each of the crude tanker size classes, putting over 86 million barrels of new capacity onto the water and marking a peak quarter for the present high‐delivery cycle, said shipbroker Charles R. Weber in its latest weekly report. According to the shipbroker, “the surge comes as yards progress into an orderbook built to high levels between 2014 and 2015 when forward fundamentals indicated a narrowing supply/demand balance. Unfortunately for owners, the surge comes against a backdrop of marked near‐term demand uncertainty and amid a two‐year‐long lull in phase‐outs, threatening to further decouple a fragile supply/demand balance and maintain headwinds on earnings for quarters to come”.
Indeed, according to CR Weber, “supply growth headwinds will likely remain a feature of the market until mid‐ 2018, when we project that the crude tanker fleets will have peaked and phase‐outs exceed new deliveries, ushering a period of negative net fleet growth which we expect will last for a few quarters thereafter. By end‐2018, the moderating of delivery levels will likely have allowed demand to catch up with supply, which should support the start of a new upcycle for earnings. Given the current decline in asset values and a historically slow reflecting in period rates of changing forward prospects and challenges, we believe that after what will likely be a difficult 2017, participants taking an opportunistic approach may view low asset prices and period rates during the first half of 2018 as attractive entry‐points”.
Meanwhile, in the crude tanker markets this week, in the VLCC segment, CR Weber noted that “combined Middle East and West Africa demand expanded modestly this week to 39 fixtures (+5%, w/w) as charterers progressed further into the February Middle East program and remained active in the West Africa market. Despite the demand gains, however, rates were softer this week as vessel availability expanded with fresh positions and a large number of potential units while the extent of demand for the Middle East February program’s second decade was uncertain. The degree of uncertainty is indeed high: we note that with 61 February Middle East cargoes covered to date, there are further 17‐22 cargoes expected through the end of the second decade. Against this, there are 41 units showing availability with a further 10 potentially available. On this basis and assuming that draws from the West Africa market remain around recent averages, the number of surplus Middle East positions at the conclusion of the second decade could be anywhere between 9 and 24 units. The variance is high with materially disparate earnings implied by our models between the high and low ends of the range. Amid all of the uncertainty, what is certain is that surplus supply has expanded with even the low end of the range VLCC Projected Orderbook Deliveries/Phase-Outs representing a four‐month high (the high end of the range would represent the highest surplus since mid‐2014). Thus, while we expect that rates will continue to experience losses during the upcoming week, the extent of rate losses will depend heavily on which supply/demand scenario plays out”, said the shipbroker.
In the Suezmax ship class, CR Weber said that “after a stable first half of the week, rates in the West Africa Suezmax market posted fresh losses late during the week as participants reacted to a widening supply/demand imbalance. A total of nine fixtures were reported, one fewer than a week ago and a quarter fewer than the 52‐week average. Slow recent demand follows elevated VLCC demand in the region during the January program, which has extended into the February program. Elsewhere, demand in the Middle East market has trended stronger since the start of the year, but remains low as compared with levels observed during 4Q16. An accelerating pace of newbuilding deliveries, however, complicates any positive influence from Middle East demand on the overall Suezmax balance as these units generally seek first trades from the region thus reducing absorption of ballast units from Asia, pushing more onto West Africa position lists. Rates on the WAFR‐UKC route shed 7.5 points to conclude at ws80 and the AG‐USG route shed 17.5 points to conclude at ws42.5. High coverage of the February program to‐date by VLCCs leaves fewer cargoes available for Suezmaxes, which will likely see demand remain during the upcoming week at levels which fail to move the balance of favor from charterers to owners”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
