World’s GDP set to rise – higher tanker demand

Jan 01 2014

During 2013, it was the turn of the developed economies to show growth, while developing and emerging economies suffered slower growth.

Despite key economic regions’ efforts to stimulate growth, there was not a full blown self sustained economic recovery, said  BIMCO in its annual publication – Reflections.

For the second quarter of last year, Europe recorded its first positive GDP growth figures in 18 months. However, rising unemployment, particularly among the young, continues to blight the Eurozone.

The US is projected to grow by 2.6% this year and as for the world’s second and third economies, China is on track to grow by 7.3% in GDP, while Japan is being driven forward by a determined effort labelled ‘abenomics’ that is set to boost the country’s monetary base, resulting in the return of inflation and a growth in GDP, BIMCO said.

However, looking at the various shipping sectors, the move in the distribution of economic growth to a demand situation driven by the advanced economies will affect the sectors differently.

The IMF has forecast that 2014 GDP and world import volume growth will climb to a three-year high of 3.6% and 4.8% respectively.

Europe will slowly recover resulting in slightly higher demand for tankers. The US driving force will be strong private demand and increased domestic oil production, which should benefit the product tanker trades.

Growth in emerging markets and developing countries is forecast to remain strong at 5.1% this year, BIMCO said. This advance will be supported by solid domestic demand, recovering export levels and supportive fiscal, monetary and financial conditions, which is a positive sign for all shipping sectors.

All the main shipping sectors are weighed down on the supply side, causing significant volatility in freight rates. Fortunately, the shipping industry has now improved its ability to apply counter balancing measures to such an extent that even the most over supplied sectors may experience periodic healthy earnings, BIMCO said.


Looking at the newbuilding market last year, the attempt to fill yard capacity continued to persuade owners to order by yards offering lower prices, which met with some success.

With the continuing high cost of fuel, shipowners quest for more fuel efficient, or eco designs, continues to be the main motivator in filling shipyard slots and is now driving newbuilding costs upwards. There appears to be no lack of capital for investors who think shipping is a healthy business.

However, the more traditional bank lending has declined in favour of new capital sources, such as private equity and debt investors.

Shipping demand last year was a bit weaker than originally forecast, but on the supply side, the size of the fleet continued to outweigh demand across all sectors. However, this year could see a change for the better, as the pace of new deliveries slows, except possibly for product tankers.

For this year, BIMCO said that it expected the dirty tanker segment to grow by 2.9% as against the 2013 estimate of 2.3%. However, it will be negatively affected by low recycling volumes. As for the clean segment, this is forecast to reach a four-year high of 4% growth, compared with the 3.2% estimated for last year.

During 2013, an uninspiring crude tanker market was suddenly given a boost by a spectacular rally in VLCC freight rates during the fourth quarter of last year. In the product tanker segment, expectations are firming, as this was the first segment to recover from the general tanker downturn.

This year is set for stronger product tanker demand than seen in 2013, but this year will also herald a larger fleet to cater for this demand. However, the fundamentals improved last year, although this has not been reflected in freight rates, thus far.

Most of the changes to the more traditional  tanker routes have stemmed from the fast changes seen in the US domestic oil market.

As a result of these changes, the front haul routes into the US have reversed into oil products exporting trades.

For long term participants in the crude oil segment, the question will be whether China’s efforts to switch its oil supply sources in favour of West Africa and South America will offset tonne/mile losses caused by the US significantly reducing its crude oil imports.

BIMCO said that a quick calculation showed that for every barrel of oil lost from the MEG to the US, two extra barrels will be needed to be shipped to the Far East in order to prevent a reduction in tonne/mile demand.

Oil demand to increase

In another report, with global economic growth in 2014 projected to increase to 3.5% from 2.9% in 2013, world oil demand is forecast to rise by one million barrels per day, according to a recent monthly bulletin of the Organisation of Petroleum Exporting Countries (OPEC).

Helping the crude oil tanker market, the oil demand is expected to grow by one million barrels a day this year, compared with 900,000 barrels per day this year. This forecast is supported by improved performances by the emerging economies and as the global economy continues to recover in general, the report said.

“Oil demand growth continues to come mainly from non-OECD (Organisation for Economic Cooperation and Development) countries, while OECD oil demand is expected to show a further contraction, albeit at a slower rate,” OPEC’s Monthly Oil Market Report (MOMR) said.

However, the MOMR article pointed out that the latest forecast is faced with uncertainties related to the pace of  economic growth in the OECD region, China and India, as well as to policy reforms in oil product retail prices in some emerging economies.

The improving picture is backed by a strengthening of the global economy in 2014, which is forecast to expand by 3.5% against 2.9% in 2013, mainly as a result of momentum in the OECD economies.

“However, many challenges remain, ranging from the outcome of postponed fiscal negotiations in the US, the future monetary policy of major central banks, the resilience of the Eurozone recovery and continued reforms in the emerging economies to improve structural issues,” the report said.

It stressed that the signs of a recovery are already visible in rising global industrial production.

According to the MOMR, on the oil supply side, non-OPEC supply growth in 2014 is expected at almost the same level as last year at 1.2 mill barrels per day with some risks in both directions, given possible early start-ups, or delays, as well as political, technical and meteorological factors.

Output of OPEC natural gas liquids (NGLs) is expected to rise by 100,000 barrels per day in 2014, following an increase of 200,000 barrels per day last year.

The report noted that non-OPEC supply growth in 2013 performed better than initially expected, supported mainly by the US and Canada, which added around 1 mill barrels per day.

Other contributions to 2013 growth came from the Sudans, Russia and China, while output disruptions in Syria, along with the  decline in North Sea production, partially offset this growth.

“While the above forecasts indicate that incremental non-OPEC oil supply and OPEC NGL growth will outpace projected world oil demand growth, the 164th OPEC Ministerial Conference (held in Vienna on 4th December last year) decided to maintain current production of 30 mill barrels per day in the interest of maintaining market equilibrium.

“In taking this decision, the organisation’s member countries re-confirmed their readiness to promptly respond to unforeseen developments that could have an adverse impact on an orderly and balanced oil market,” the report said.

Looking at 2013, the MOMR said the price of the OPEC Reference Basket experienced significant quarterly swings.

After reaching close to $115 per barrel in the first quarter of last year, the basket price came down steeply to around $96 per barrel in the second quarter, before regaining strength to rebound sharply in the third quarter.

By the middle of January this year, Brent crude stood at around $107 per barrel.


According to a report from EA Gibson, in deadweight terms, tanker tonnage sold for demolition last year amounted to 12.6 mill tonnes, the highest total seen since 2003.

Lightweight prices remained fairly firm throughout the year and closed December at about $435/lwt tonne (sub-continent) – around $15 higher than the corresponding period last year.

Of the 105 tankers of 25,000 dwt plus sold for scrap, exactly one third were less than 20 years old and importantly 72 vessels were double-hull.

Of these, 22 vessels were VLCCs with an average age of 18.9 years. There were also 11 Suezmaxes and 28 Aframaxes/LR2s sold for scrap last year, plus 36 MRs/Handysize tankers.

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