In Hellenic Shipping News 08/05/2017
More and more ship owners are actively looking to secure more tanker newbuildings, especially VLCC tonnage. In its latest weekly report, shipbroker Gibson noted that “the lull in new tanker orders last year coupled with accelerating pace of deliveries reduced the size of the orderbook, raising hopes that the rapid growth in fleet size witnessed currently will come to an end in 2018/19. However, the dynamics of the newbuilding market are starting to change again this year, with a notable increase in shipowners’ appetite for new VLCC tonnage. So far this year circa 30 VLCC orders have been confirmed (including the latest four firm orders from Capital Maritime) versus just 13 orders for the whole of 2016. Ordering activity in other tanker categories remains restricted, although some modest gains have been observed in the Aframax and LR2 sectors. Nevertheless, we understand that a number of owners (not just VLCC owners) are considering investment in new tonnage and are actively talking to shipyards”.
According to the shipbroker, “the latest developments have been to a large extent driven by low asset values. Newbuild prices across all sectors declined last year on the back of the turmoil in the shipbuilding industry, which has been hit by a prolonged period of low ordering activity in a number of shipping sectors, including tankers. STX shipbuilding filed for a court led restructuring, whilst many leading shipyards are going through cost cutting, consolidation and restructuring. Depleted orderbooks combined with challenging financial conditions have forced shipbuilders to compete even harder, pushing prices lower and lower. As a result, this year tanker newbuild values reached their lowest levels since late 2003/early 2004”.
Gibson said that “the latest wave of new tanker orders has occurred against deteriorating trading conditions. Spot earnings in the product tanker market have been very weak for quite some time, frequently falling to or even below the level of fixed operating expenses. The crude tanker market has fared better, VLCCs in particular; yet, even here earnings so far this year have been notably lower relative to 2016. While returns in the market are being pressured, the orderbook is still far from being modest”.
Paddy Rogers, the CEO of Euronav, spoke against the latest flurry of VLCC orders, suggesting that these orders are not needed by the market in current challenging conditions. “However, newbuild prices appear to be too attractive to resist. Apart from low price levels, ordering a new tanker now offers an additional benefit – delayed delivery due to a lengthy construction period, which will enable the owner to take control of the asset once the current phase of rapid fleet growth is over and/or is approaching its end. Furthermore, owners making a decision to order will have the flexibility to have their tonnage prepared in a most efficient and practical way for the approaching key legislation: the Ballast Water Treatment Management convention, which will come into force in September this year and the 0.5% global sulphur cap for marine fuels, effective January 2020”, said the London-based shipbroker.
According to Gibson, “there is clearly some sound logic behind ordering a tanker now, which suggests that firmer interest in newbuild tonnage is unlikely to disappear anytime soon. However, access to new finance remains at highly restricted levels, while it is more challenging to advocate the case for new investment while returns in the industry are weak and/or are deteriorating. As such, only those with strong financial muscle are likely be in a position to capitalise on the current set of circumstances”.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC initially continued to compress lower, but then enjoyed increased bargain hunting attention that recreated enough momentum to make good the lost ground and in the end, move rates into slightly higher territory over last week’s close – bottom markers of ws 60 to the East now, with modern units looking for mid ws 60’s and low/mid ws 30’s the marks to the West. Owners will be hoping for the traditionally active end month phase to allow for further improvement next week. Suezmaxes posted no positive change over the week as a weaker West African scene persuaded Owners to remain in situ and compete for more limited local demand. Rates eased to around ws 80 to the East and to under ws 40 to the West accordingly. Aframaxes stayed rather flat over the period, within a ws 110/115 range to Singapore and are likely to remain rangebound well into next week too”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
