Tanker Shipping - primarily positive prospects for products

Tanker Shipping - primarily positive prospects for products

Overview

”The smaller the better” seems to be the mantra in the tanker segment these days. Whilst all crude tanker segments enjoyed a spike in earnings in late December, the subsequent drop hit the VLCC much harder than the Aframax segment.

The start of 2013 has been tough on crude oil tanker owners, who face another challenging year. Meanwhile, optimism seems to remain in the clean product segments.

Demand:
”The smaller the better” seems to be the mantra in the tanker segment these days. Whilst all crude tanker segments enjoyed a spike in earnings in late December, the subsequent drop hit the VLCC much harder than the Aframax segment. Earnings for VLCCs currently hover around USD 5,000 per day, while Aframax vessels earned USD 15,217 per day in the week ending 1 February. The lack of westbound cargoes from the Arabian Gulf is particularly troublesome for VLCC owners.

The story is the same for product tankers; LR1 and LR2 earnings plummeted throughout January, currently earning around USD 7,500 per day. Meanwhile, the MR and Handysize product tankers kept up the good spirits built up throughout the second half of 2012 and Handysize tankers in particular seem to be flying, with earnings going north of USD 20,000 per day.

The demand for VLCC going forward will primarily be driven by exports to the Far East. Whilst the Far East receives most of its crude oil from the Arabian Gulf, the increased demand will hopefully also benefit exports from West Africa. The sailing distance from Bonny (Nigeria) to Chiba (Japan) is 63% longer than from Ras Tanura, meaning that West African exports to China is a better story for the shipping industry on a tonnes-mile basis.

For product tankers, the place to be is the Atlantic basin, with the Handysize Rotterdam-New York rates staying around WS 190 at the moment, while Handysize Singapore-Chiba route only attracts WS 130. This translates into an earnings difference of USD 18,000 per day between the two routes, which explains why owners try to bail out from the Eastern market into the Atlantic basin.

Supply:
While BIMCO remains bullish with regard to the supply side of product tankers, we also reiterate our bearish outlook on the supply side of crude oil tankers.

During all of 2012, just 77 new product tankers entered the fleet. The pace in 2013 is expected to be a bit higher. This is backed by data from January, where 11 new product tankers were delivered. At the same time, 4 older product tankers were sold for demolition, leaving the fleet growth at just 0.5% in January. The only new contracts that were signed in January were, not surprisingly, six MR tankers (52,000 DWT) placed at a South Korean yard.

In 2013 focus will be on the MR segment (42,000-60,000 DWT) where BIMCO expects 47 new vessels to be delivered. It will be in this sub-segment that the majority of the tonnage will enter. For some time now, MR tonnage has been in fashion, and that has built a considerable orderbook as compared to the rest of the product tanker sub-segment. It is noteworthy that MR’s baby brother, the Handysize product tanker (27,000-42,000 DWT) has gone completely out of fashion, and is likely to experience the fourth successive year of a contracting fleet size.

The supply of new crude oil tonnage came in at 2.5 million DWT during January, representing two VLCCs, 8 Suezmax and 4 Aframax. While no VLCCs were sold for demolition, the offsetting effect from recycling was insignificant.

For 2013, BIMCO expects demolition of crude oil tankers to pick up from 2012. As markets continuously deliver poor returns, the option of selling your vessel for recycling may become more attractive. BIMCO sees the VLCC segment as facing several intermediate/special surveys that may lift the amount of recycled tonnage to 10 million DWT in 2013. As regards product tanker recycling, the potential is limited and seen just on top of 2 million DWT. This is reversing the recent trend of declining fleet growth, with the inflow of newbuilt tonnage to stay on a par with 2012.

Outlook:
Going forward, global oil demand is forecast to grow by 1.0%, down from 1.1% in 2012. The distribution of demand and its nature means the tonnes-mile story for crude oil is still building up slowly but firmly.

By looking at the overall oil demand growth for the Top-10 consuming nations, a couple of things are noticeable. The world’s second-largest consumer, China, remains in the driving seat, with IEA expecting a growth of 4.0% (+388 kb/d), followed closely by solid demand growth also from Russia (4.5%), Saudi Arabia (4.2%) and India (2.8%).

On the downside, Japan is expected to consume 169,000 barrels of oil less per day in 2013, offsetting some of the Far East demand boost to the VLCC market that China is expected to provide. Ending the oil demand outlook on a positive note, it is encouraging that the US appears to return to growth, following a drop in demand by as much as 313,000 barrels of oil per day in 2012.

Going forward, global oil demand is forecast to grow by 1.0%, down from 1.1% in 2012. The distribution of demand and its nature means the tonnes-mile story for crude oil is still building up slowly but firmly.

By looking at the overall oil demand growth for the Top-10 consuming nations, a couple of things are noticeable. The world’s second-largest consumer, China, remains in the driving seat, with IEA expecting a growth of 4.0% (+388 kb/d), followed closely by solid demand growth also from Russia (4.5%), Saudi Arabia (4.2%) and India (2.8%).

On the downside, Japan is expected to consume 169,000 barrels of oil less per day in 2013, offsetting some of the Far East demand boost to the VLCC market that China is expected to provide. Ending the oil demand outlook on a positive note, it is encouraging that the US appears to return to growth, following a drop in demand by as much as 313,000 barrels of oil per day in 2012.

BIMCO continue to expect that average earnings for the Aframax crude oil tanker segment will stay around USD 10,000-20,000 per day. For Suezmax tankers, volatility could mean sporadic spikes but on average, rates are expected to be seen in the USD 7,500-17,500 per day region.

As regards the VLCC segment, the December optimism was dashed with the coming of January. BIMCO expects the coming six weeks to bring about only a slight upside to the tune of USD 5,000-13,000 per day.

In the product segment, Handysize tanker earnings continue to surprise on the upside. BIMCO expects some strength to remain and forecasts earnings in the interval of USD 12,500-20,000 per day. In the meantime, earnings for the MR product carriers have developed as foreseen, with some softness likely to occur in the near future and rates to slide subsequently. Expect MR earnings in the range of USD 9,000-13,000 per day.

Following a surprisingly good fourth quarter, where earnings on benchmark routes for LR1 and LR2 from AG going East went from below USD 10,000 to 28,000 per day, “earnings-as-usual” are unfortunately back. BIMCO expects LR1 and LR2 earning in the range of USD 2,000-8,000 per day in coming 6 weeks.

in Copenhagen, DK

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