Future tanker demand to be influenced by several factors

Sep 06 2019


Taking a quick look at McQuilling Services ‘2019 Mid-Year Tanker Market Outlook Update’, this year, total tanker demand will increase 1.1%, down from 1.6% growth seen last year.

Over the 2019-2023 outlook period, tonne/mile demand for DPP and CPP cargoes is expected to grow by 1% and 1.8% per annum, respectively, with the Aframax and LR1 segments outperforming on an individual basis.

There were 140 tanker orders placed through July, slightly below the 145 contracted in the same period last year. The bulk of these orders involved VLCCs and MR2s as 28 and 56 firm orders were placed for these types, respectively.

Today, demand for crude tankers is being and will be influenced by many factors, including a shift in the OPEC/non-OPEC compliance accord, IMO 2020 regulations, decelerating economic activity, Iranian sanctions, higher North American output and exports, supply disruptions in Venezuela, expanding demand from Asian refiners in the context of volatile crude pricing differentials and a stable European crude demand environment, the report said.

For clean tankers, increasing product deficits in Latin America remain conducive to US Gulf exports; while the expectation for changing balances in the East of Suez refining centres have the potential to exacerbate long-haul transportation requirements.

McQuilling’s view on bunker supply for IMO2020 was that VLSFO will be longer-term solution from refineries, at the expense of MGO, which could see some higher demand in the early parts of the adoption period, due to compatibility concerns for blended fuel oil solutions.

For 2020, the report forecast VLSFO to be at $531 per tonne in Rotterdam, compared to $309 for HSFO, allowing for some economic benefits if opting for scrubber solution.

As for earnings, based on the view that earnings for non-ECO, non-scrubber VLCCs will average below $20,000 per day in 2020, an anticipated increase in deletions to 36 is expected to help re-balance the fleet during that year. The pace of deletions was projected to stay firm in 2021 and 2022 with 34 and 35, respectively, decreasing net fleet growth down from 3.8% next year to just 1% in 2021 (average inventory basis). 

Taking into account tanker fundamentals and bunker pricing forecasts, the consultancy predicted that spot market earnings for standard consumption VLCCs will average $19,593 per day in 2020, although the TD3C round-trip voyage will register only $16,200. 

For Suezmaxes, McQuilling forecast an average of WS73 in 2020 for the benchmark TD20 trade, before firming to WS93 by 2022. For a non-ECO Suezmax, projections for spot market earnings over these years is $10,800 per day and $27,300, respectively. An ECO-tanker is projected to average $17,300 per day and $33,00 on a TD20 round-trip trade over this same period, taking advantage of higher bunker costs. 

Overall, by 2022, McQuilling estimated that global Aframax earnings on a trade weighted basis will average $26,200 per day for a non-ECO design and $29,900 per day for an ECO-consumption vessel.

LR2 global earnings will average $11,600 per day in 2020, before rising to $17,500 by 2022. A relative out performance for the LR1 tanker is projected, similar to 2019 actual levels with TCEs on the TC5 + South Korea/Singapore triangulation voyage estimated at $15,100 per day/day in 2020 (non-ECO).

MR owners can expect slightly lower volatility in the earnings environment between 2019 and 2020 relative to other segments, as the Atlantic Basin triangulation was projected to average $12,900 per day in 2019 and $13,500 next year. Asian trading MR tankers were forecast to follow similar earnings potential with TC7 averaging $12,800 in 2020, before expanding to $17,100 per day in 2022, some $1,300 per day less than the Atlantic Basin triangulation in that year, McQuilling said.

 

In the ongoing tit-for-tat US/China trade war, the Chinese have added a 5% tariff on US crude imports.

The US had begun imposing 15% tariffs on over $125 bill of Chinese goods, as President Trump indicated that he aimed to reduce US reliance on China.

Chinese state media quoted Qi Zhenhong, head of the China Institute of International Studies, a government think tank, as saying that new tariffs imposed by the US on Chinese products will backfire and hurt the US economy, but will not dampen Chinese development in the long run.

Talks between China and the US were on-going late last week.

 



Previous: Brexit and the tanker trades

Next: Indian Register of Shipping takes over IACS chair


Jul-Aug 19

Greece, alarm fatigue, Fujairah explosions, scrubbers, tank cleaning