2018 rates to remain weak - McQuilling

Jan 26 2018


This year dirty tanker rates are expected to remain weak for all classes, McQuilling Services said in its ‘2018-2022 Tanker Market Outlook’.

VLCCs are forecast to average around $21,700 per day and Suezmaxes - $12,100 per day. One-year and three-year VLCC timecharter rates are projected to average $27,000 per day and $29,500 per day in 2018, respectively.

 

This 200-page report provides a five-year spot and TCE outlook for eight vessel classes across 23 benchmark tanker trades, plus four triangulated trades. Also included is a five-year asset price outlook, as well as a one and three-year timecharter forecast through 2022.

 

Global crude demand is expected to rise by 840,000 barrels per day in 2018 amid significant growth in the East on the back of expanding refinery capacity, McQuilling Services said in its ‘2018-2022 Tanker Market Outlook’.

 

Worldwide crude supply is projected to rise by 1.5 mill barrels per day in 2018, despite continued efforts from OPEC and non-OPEC countries to rebalance the markets and normalise inventory levels.

 

Crude and residual fuel tonne/mile demand is forecast to increase by about 1% on an annual basis throughout the forecast period with a decelerating trend observed in the outer years of the period.

 

McQuilling projected 2018 demand growth of 1.8% supported by higher long-haul West to East crude flows, particularly out of the US Gulf, Brazil and Europe with pressure on demand continuing from reduced Middle East flows to the US.

 

Net fleet growth of 155 dirty ships through 2022 is forecast on the back of 591 deliveries and 436 deletions. Substantial growth of about 72 vessels is projected for the VLCC fleet, while the Panamax fleet is on track to contract over the forecast period, as owners place emphasis on coated tankers of this size.

 

On the clean side, net fleet growth of 56 vessels is expected during the period as the LR fleet expands, while the MR CPP fleet contracts; however, it was noted that the MR chemical fleet would continue to grow over this period.

 

However, the situation is expected to be quite different in the clean sector, as supply fundamentals improve with growing demand. Spot market earnings in the LR2 and LR1 sectors are projected to average around $14,600 per day and $13,100 in 2018, respectively. MR earnings on a round-trip basis are, in general, expected to rise in 2018 with TC2 TCEs averaging $8,800 per day; however, higher earnings of $14,900 per day can be attained on the basis of the Atlantic Basin triangulation.

 

The consultancy’s 2018 price forecast for the five-year old crude tanker sectors sees VLCC values averaging $62.6 mill, a 3.5% increase from the 2017 average price of $60.5 mill. Modern Suezmaxes are projected to demand $41.2 mill in 2018; however, by 2022, the values of these tankers are forecast to reach $51.2 mill amid a pickup in earnings.

 

Clean tankers of the five-year age group are expected to see higher prices relative to their 2017 averages. For the LR2 sector, an 2018 average price of $37.1 mill is forecast, a 5% increase from the average price recorded in 2017, while the LR1 sector is expected to see larger gains of 11% year-on-year to average $31.2 mill. The MR2 tanker is likely to appreciate 15% to $27.1 mill.

 

Looking back, last year, global tonne/mile demand to transport crude and residual fuels increased by 5.4%, supported by a 4.9% increase in VLCCs (which accounted for 62% of the total demand for dirty tankers). Suezmax demand accounted for 24% of all DPP demand last year, 1% higher than 2016, due to higher crude exports from the Southern Europe and North Africa load region towards the Asian refinery complex.

 

McQuilling said that the Middle East’s largest producer, Saudi Arabia, cut crude exports to every region in 2017, except the Far East, where traded tonnes rose 2.4% using official trade data through September, 2017. By comparison, exports to North America were markedly lower by about 7-9% amid rising North American crude oil production and de-bottlenecking from improved land-based infrastructure.

 

In examining bilateral country trade flow data, the report recorded a 2.1% rise in CPP tonne/mile demand distributed across the four tanker segments analysed. At 2.23 trill tonne/miles, CPP marine transportation requirements make up 17.3% of all tanker demand, the highest on record.

 

For 2017, it was estimated that LR1 transport demand declined by 2.4%, following a 3% rise in 2016. With the estimated amount of transported tonnes remaining stable year-on-year at around 119 mill, the reason for this contraction was explained by a reduction in mileage from 3,703 miles per voyage to 3,618.

 

Throughout 2017, McQuilling recorded 145 dirty vessels delivered to the fleet, an acceleration when compared to the 101 ships observed in 2016. The Suezmax sector expanded significantly with a net fleet growth of 45 ships. On the clean side, a similar trend was observed with vessels additions rising from 55 in 2016 to 71 in 2017. In addition, 60 MR chemical tankers joined the fleet.

 

Vessel deletions totalled 91 last year - 64 from the dirty side and 27 from the clean side. About half the removals involved the VLCC and Aframax sectors with 24 and 25 vessels removed, respectively. In the clean segment, 27 deletions were recorded with the majority in the MR size range at 21 vessels, while four LR2s and two LR1s were removed.

 

Newbuilding ordering activity rose 64% year-on -year in 2017 within the DPP sector amid much more interest in the VLCC and Aframax segments. In 2016, 19 VLCCs were ordered, which rose to 51 in 2017. Suezmax and Aframax orders also increased, rising to 23 and 34 newbuilding contracts, respectively. Clean tanker ordering activity through 2017 saw a decline in comparison to the previous five years with 16 LR2s and five LR1s contracted. In the MR2 sector, 67% of orders were chemical tankers, while in the handysize segment, owners increased this percentage to an absolute 100%, the first year this has occurred.

 

Global economic activity strengthened in 2017, following a year of the weakest growth since the financial crisis at 3.2% in 2016. According to the International Monetary Fund, global growth is on track to expand 3.7% in 2018, an upward revision from previous expectations.

 

In this report, McQuilling included some new features, including -

 

*Enhanced vessel demand data for European land-locked countries with access to neighbouring country ports, supporting the ability to exceed 95% coverage of global trade flows.

 

*Refined the long-term vessel delivery forecast methodology using regression analysis of historical fleet behaviour to forecast future deliveries in conjunction with the current orderbook.

 

*Adjusted the deletion profiles to factor in historical deletion patterns and apply corresponding ratios to each sector in order to gain a more accurate view of fleet evolution.

 

*Developed a spot rate/TCE forecast for the Suezmax AG/Med route in response to the robust growth of Middle East crude flows into Europe.

 

*Added two LR2 trades - AG/UKC and Med/Japan - as well as one LR1 trade - South Korea/Singapore - to expand coverage of the clean sector and produce two triangulated voyages for the LR sectors.



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Markets, Middle East, commercial operations, ballast water, Tanker Operator Hamburg report