As the tanker market is witnessing a robust period of earnings, ship owners appear to be restrained when it comes to future newbuildings, especially given that almost half of the current orderbook is expected to be delivered this year. According to the latest weekly report from shipbroker Intermodal, “the current market environment is the result of low crude oil prices, characterized by the increased demand for petroleum products in OECD countries (expected to surpass that of the developing countries by 2020), the increased output of refineries and consequently lower price of refined products”.
According to Mr. Stratos Tiniakos, Tanker Chartering Broker with Intermodal, “as we have now entered the second quarter and still enjoy some very good returns in the tanker market, we are looking back at the MR returns and how the MR fleet unfolds from 2012 to 2017. We see that an average of 126 vessels is delivered per year with a standard deviation of 32 vessels. The returns in the sector have increased due the factors mentioned above as well as the opening of more and more refineries around the world”.
Mr. Tiniakos added that “150 vessels, almost half of the orderbook, are due to be delivered throughout this year, while in 2016 and 2017 we expect 123 and 25 vessels respectively. Given the overwhelming slowdown in newbuilding activity over the past 9 months and based on the current economic projections we expect the slowdown in orders to persist for a bit longer. In the meantime we see that the current environment do not support SnP activity, as Sellers push for more seeing their margins improve and buyers are still considering if the premium is worth at this stage”.
The analyst added that “the MR fleet up to 5 years old is expected to be around 647 vessels at the beginning of 2017. The main characteristic of the majority of the ships that were built post 2013, is that they are of eco design, which currently earns them a premium of around 10% in the t/c contracts compared to non-eco ships. According to our data the time charter fixtures concluded during the period 2012 up to now with a time horizon of 4 months up to 5 years, we observe that the majority concerns T/C contracts of over 1 year period”.
Intermodal’s broker also noted that “the average 1 yr T/C rate for max 5yr old vessels is around 13,850 /day and it has been on an upward path since last year, while the trend for 2 yr T/C is also rising with an average rate of around usd 13,970/day. We also observe that starting 2013 and throughout 2015 rates have been increasing regardless of vessel age in both these period contracts, while 3-yr period contracts are currently being fixed at around usd16,000/ day for vessels up to ten years old, while the existence of the eco design in this case has made no difference in terms of premium”.
According to Mr. Tiniakos, “the remaining of the year will be challenging for spot players as they will have to cope with the scheduled deliveries that will be added in the active service fleet, while in regards to new entrants – especially private equity funds – we could be seeing more aggressive movements in the form of acquisition of modern units on en-block basis. If this proves to be the case, it will also translate to more aggressiveness in fixing long term contracts as well. Obviously charterers will take advantage of the modernization of the fleet and we anticipate that they will hold back and focus on periods of 2-3 years on modern eco imo units at sub usd 16,000 levels”, he concluded.
Meanwhile, in the newbuilding market this past week, Intermodal said that “one of the same” could very well be the title for last week’s newbuilding market that was once more described by stalling prices and non-existent dry bulk contracts. Tanker orders continue to make up for the great majority of the newbuilding activity that is being reported in the market, which overall remains fairly elevated compared to the levels we were witnessing earlier in the year. Among these, crude carriers are safely on top of owners’ preference list, while on the other hand the painfully for the yards sluggish newbuilding activity in the dry bulk sector, seems that is here to stay. With prices at a small discount compared to 2014 and still above the 2013 and 2012 averages, the argument for a dry bulk newbuilding order is still exceptionally weak to make. Indeed, the discount modern units are currently traded in the market, while at the same time, rate premiums in freight markets that are as depressed as this one, are usually hard to achieve based solely on an age differential compared to the competition. In terms of recently reported deals, Saudi Arabian owner, Bahri, placed an order for five firm plus five optional VLCCs (319,000dwt) at Hyundai , in S. Korea, for a price of $96.5 each and delivery set in 2017″, Intermodal concluded.