Owners holding onto tonnage

Nov 15 2019


During the last 10 months of 2019, just 30 tankers of over 25,000 dwt were reported sold for scrap.

About half of all demolition activity was seen in the Handy/MR size group, with 17 units removed since the beginning of the year, Gibson Shipbrokers said in a report.

 

There were three Panamaxes/LR1s demolished and just one tanker in the LR2/Aframax size group.

 

The count is marginally higher for larger crude carriers, with five Suezmaxes and four VLCCs sold for recycling.

 

This was in stark contrast to last year’s figures, when over 150 units were scrapped.

 

However, this year’s dramatic decline in numbers is not surprising, considering that the pool of prime candidates for demolition has been considerably reduced following intense activity in 2018.

 

Weaker scrap prices have also discouraged demolition, with lightweight values gradually falling from a high of $435 per tonne in March, 2019 to under $375per tonne in October, notably down from a peak of $465 per tonne seen in early 2018.

 

Throughout this year, there was also less willingness from owners to send tonnage for scrap as expectations were running high that the rebound in the market is just around the corner.

 

In addition to actual demolition sales, Gibson also saw an increase in VLCC floating storage demand in recent months, mainly for vessels around Singapore/Malaysia, as final preparations for IMO2020 got under way.

 

According to the shipbroker’s records, at the end of October 35 VLCCs and converted VLCCs (FSOs) were involved in storage of crude, dirty petroleum products (including IMO2020 compliant bunker fuels) and clean products.

 

Although this is quite a substantial number, the vast majority of these vessels have been involved in storage operations for quite sometime.

 

A temporary spike in tanker earnings in October to their highest level in over a decade boosted owners’ confidence and, as such today, it is hard to find a solid argument to support a demolition decision.

 

Moreover, scrapping activity is likely to remain at minimal levels over the next few months on the expectation that geopolitical uncertainty, seasonal strength in refining runs, weather related delays and the IMO2020 disruptions could support tanker earnings during the winter season.

 

However, this situation could change, as we progress into the second quarter of next year. Although at present there is some optimism about the US/China trade talks, the evidence is mounting that the current state of affairs is already reducing the gains in world oil consumption and is likely to translate into sluggish growth in demand next year, keeping a lid on the potential rebound in tanker earnings.

 

In terms of tanker supply, nearly 110 tankers will be celebrating their 20th birthday next year, with figures being particularly high for larger crude carriers.

 

Not all of these units will head for the beaches. However, trading conditions for ageing and inefficient tonnage will undoubtedly become more challenging, with the bunker base shifting to more expensive 0.5% sulfur fuels. This will add an extra cost on top of typical extended off-hire periods and higher maintenance & repair expenses.

 

Furthermore, there are also tankers of over 15 years of age that will have to renew their International Oil Pollution Prevention (IOPP) certificates and hence face the deadline for an expensive ballast water treatment system retrofit next year.

 

The choice whether to bite the bullet will be individual for every vessel. However, arguments to support the demolition decision will certainly have more weight.

 



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Jul-Aug 19

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