Mixed signals – clean tankers to come under presssure

Mar 03 2014


Looking back over 2012 and 2013, global tonne/miles demand for CPP & DPP tankers increased by roughly 2%, according to trade data analysed by McQuilling Services in an industry note issued during the middle of February.

This development was primarily supported by clean product trade, which saw overall tonne/mile demand rise by 3%. As for the crude and residual fuel tankers, total tonne/mile demand rose by just over 1% yearon- year.

In addition to global economic concerns, primary pressure on crude and residual tankers throughout 2013 was heavy refinery maintenance, especially at the start of the year, which reduced feedstock demand.

This seasonal market factor was further exacerbated as European refiners continued to struggle from reduced margins while problems with the Motiva refinery in the US put pressure on AG import volumes.

Although the oil production boom in the US oil has all but eroded, its imports of light sweet crude oils, longer sailing distances to markets east of Suez, provided support to tonne/mile demand originating in West Africa.

In terms of the tonne/mile demand, lower freight rates, which were spurred by over tonnage in the sector, supported a 6% rise in Suezmax tonne/mile demand.

As we move into the current forecast period (2014-2018), we expect that tonne/mile demand for crude and residual product tankers will rise by a relatively low 0.75% on an annual average, McQuilling said.

Turning to clean product tankers, trades originating in the US continued to post higher outflows particularly to Europe, the Caribbean, South America and increasingly, Africa. While the MR2 fleet transported the majority of clean trade volumes, we continued to see a migration towards the larger LR fleet. Tonne/mile demand for both LR2s and LR1s increased by 7%, while MR2 demand increased by a lower 3%. At present, we expect tonne/mile demand for clean petroleum tankers to rise by a relatively higher annual average of 1% during the forecast period to

Newbuildings robust

Contracting activity was robust in 2013, as through the year, orders were placed for 392 tankers above 27,500 dwt. This was the highest level seen since 2007 when 394 were ordered.

About 55% of these orders were for MR2s, bringing orders for this class up to 350 since 2011. Orders for other clean tonnage were also healthy - a testament to where market participants’ optimism lies.

This activity continues to cement our belief that starting in 2015 and 2016, clean tonnage will come under pressure, McQuilling warned.

Analysing dirty tankers, a firm 41 VLCCs were ordered, with about 30% of these contracted in the fourth quarter of last year.

While some of these vessels are unlikely to leave the yards, the ordering activity highlights how sentiment can quickly override history.

In preparing for this year’s tanker market outlook, we continued to increase collaboration with our clients and other market participants. This provided us with greater insight to trade flows, in particular for clean products and further product movements. The information was incorporated into our demand engine, providing broader criteria for analysis, the consultancy explained.

As we began the forecast period we realised that the global fleet was unbalanced, as seen by the recent swings in the market. However, despite strong performances in some sectors, the quick correction (in February) has reminded us of the abundance of tonnage.

Throughout recent years, this excess tonnage capacity has been mitigated by owners opting to slow steam in the face of rising bunker costs, but an improvement in earnings could cause some owners to push the throttle forward and exacerbate the situation.

Until owners opt to dispose of older tonnage, or stricter age limits are imposed through charterers, port restrictions, or vetting procedures, fleet levels will remain a concern and improvements in spot rates are likely to be limited.



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