BIMCO report shows dynamic nature of the product tanker market
BIMCO has published a report for the tanker shipping sector, showing that theworld of energy is undergoing fundamental changes.
Demand
The dynamic nature of the product tanker market, where refinery locations, local market demand specifications and price arbitrage trades are constant moving objects, turn one main trade into a minor trade within a New York minute. The Atlantic gasoline arbitrage trade is still of relevance, but the front-haul these days is diesel going into Europe. Export-dedicated refineries in the Middle East are coming rapidly on stream nowadays, supplying the market with many oil products. Finally, large swings in the value of local currencies in Emerging Markets can make arbitrage windows open where they have not been before.
On the LR1s and LR2s going from Ras Tanura to Yokohama, some hectic activity due to sudden and strong demand for distillates lifted rates from next to nothing to USD 15,000 per day. Demand also arrived from East Africa, lifting rates on those routes equally fast. Over the course of the last month, half the gain was lost. Rates now drift southwards, just passing the USD 7,000 per day mark.
The misery will not go away in the crude oil tanker business. The pain centres primarily on the steep decline in long-haul imports into the US that has brought VLCC earnings on US-bound trades to the floor. Even though the domestic US production is foremost in driving West African imports out of the market, the effect tears across the market, as illustrated by the decline in TD1, which represent US imports from the Persian Gulf. The TD4 (Bonny Off – LOOP) mirrors the pattern of TD1.
Crude oil tanker asset values continue to decline, with a clear tendency that elderly tonnage declines the most percentage-wise. Over the past 20 months, a 2005-built VLCC has lost half of its second-hand value, and a 2009-built VLCC has lost 40%, according to Vesselsvalue.com. Such degradation is hurtful to balance sheets.
Supply
The new supply of product tankers has taken fleet growth to 2.5% for the year so far, while demolition volumes continue at unenthusiastic levels, with just 32 oil product carriers having been taken out of active service since 1 January. BIMCO forecasts that an expected improvement in the freight market is likely to keep low demolition numbers around in coming years. The existing optimism is expecting that to happen.
Product tanker contracting has been hectic in 2013. More product tankers than those ordered during last year in its entirety (101) have already been ordered so far in 2013 (106). No less than 16 new MR orders have been signed in the past two months, all delivery in 2015 and beyond. If we focus on the larger MR tankers between 50,000-55,000 DWT, the fleet currently holds 325 tankers, with 144 of that size on order. A look at the broader fleet size between 45,000-60,000 DWT tell us that the order-book-to-fleet ratio is 18%, with 2014 scheduled to be the big delivery year, with half of it all potentially delivered.