Analysis by Poten & Partners
According to Poten & Partners, the tanker market is off to a good start so far this year. Rates for crude and product tankers are up compared to the same period last year and 2013. While experiencing healthy rates and prices, the tanker market is not so volatile that it elicits irrational behavior. The level of newbuilding contracting so far this year is an indication of this new normal
A review of the new orders placed so far this year shows that medium sized tankers are the most popular. Of the 48 new tankers contracted in the first quarter of this year, 11 were LR2/Aframaxes, 8 LR1/Panamaxes and 18 were Suezmaxes, which represents somewhat of a comeback for these segments. Suezmaxes, in particular, were not very popular in recent years as surging U.S. shale oil production seemed to jeopardize their transatlantic business. During 2013 a mere 3 Suezmax orders were placed. In the second half of 2014, owners started to realize that to paraphrase Mark Twain the reports of the death of the Suezmax segment were greatly exaggerated. After a lacklustre start of the year, ordering picked up. For 2014, as a whole, 42 Suezmaxes were contracted. The numbers for 2015-todate indicate that full year 2015 may surpass 2014, but contracting should remain below the 74 Suezmaxes ordered in 2006, during the tanker market supercycle.
As a result of the growth of export refineries in parts of Asia and the Middle East and, more recently, the boom in product exports from the United States, demand for longrange (LR) product tankers has started to accelerate. Shipowners picked up on this trend and LR1 and LR2 tankers have become popular segments. In the Panamax size segment, almost all new orders are coated LR1 product carriers. Out of the 54 vessels currently on order in this segment, 51 (95%) are slated to have coated cargo tanks. In the Aframax segment, the situation is less extreme, but the trend is the same: owners prefer coated (LR2) product tankers over crude Aframax tankers by a margin of 2 to 1.
In the first quarter of this year only two Medium Range (MR) product tankers were ordered. While this is substantially lower than in 2014, the contrast is particularly stark with 2013. Two years ago owners placed orders for 38 MRs in Q1. 2013 was a banner year for MRs. When the year came to a close, no less than 177 MRs were added to the orderbook. It appears that owners are now waiting to see if all these new MRs can be successfully absorbed before placing additional orders.
Rates for main Tanker Segment ($/Day)
Reported Tanker Contracts by Quarter Ordered
The ordering behaviour for the largest crude carriers, VLCCs, is less erratic. After placing only a few orders during the depressed rate environment of 2011/2012, owners, encouraged by improving rates, placed orders for 34 VLCCs in 2013, followed by 36 contracts in 2014. So far in 2015, owners have ordered 8 VLCCs, on target for an annual rate of 30-35.
Overall, the current orderbook seems devoid of extreme developments and the tanker market appears to be experiencing a happy-medium at the moment. Rates are high enough to give owners a decent return, and consider fleet renewal as well as some expansion, but not so high as to elicit irrational exuberance from shipowners or attract hot money from speculators and inexperienced investors eager to make a quick buck.
Source and Image Credit: Poten