Tanker orders analysed

Jun 10 2016

Between 2013 and 2015, there was a surge in new tanker orders for all sizes with the exception of Handy/MRs.

Investment in the LR2/Aframax and LR1/Panamax size groups was focused on clean tonnage, although last year there was also a strong interest in dirty Aframaxes, Gibson said in a report.  

The total number of orders placed last year reached the highest level since 2007. For the most part, this new investment was driven by high tanker earnings, while some orders scheduled for 2016 were ‘fast tracked’ in to 2015 to avoid paying higher costs associated with TIER III regulations.

However, the investment background is different this year. Tanker rates and earnings have started to ebb, most notably in the product tanker market. At the same time, there have been reports of difficulties in accessing new finance.

Also concern is growing that earnings could come under further downward pressure once all the tonnage ordered over the past three years is delivered into the market.

Since January this year, 102 tankers of over 25,000 dwt have started trading but there are still many more to be delivered over the next two years, Gibson reported.

As of the beginning of June, the tanker orderbook stood at 14% of the existing fleet, although percentages varied depending on the sector. For example, Suezmaxes had the largest orderbook at 22% relative to its current fleet. In contrast, Handy/MRs saw the smallest orderbook - at just 10%.

Not surprisingly, there has only been a handful of confirmed tanker orders thus far in 2016 (early June, see below for the latest orders). Just 20 orders were placed, with nearly half in the MR segment. It will be interesting to see what happens to ordering activity during the remainder of the year, Gibson said.

Downward pressure on asset values could stimulate new investment, as newbuilding prices slipped in May to their lowest level since 2013. The lower prices seen could be down to the challenges faced by the shipbuilding industry.

Apart from limited access to new finance, shipyards are dealing with a number of other adverse conditions, most notably low order intake. This adverse situation could force yards to compete even harder and thus further reduce newbuilding prices.

Some owners may use this as an opportunity to augment their fleets and/or replace ageing tonnage.

On the other hand, the same could lead to the permanent closure of shipbuilding capacity. STX Shipbuilding filed for a court-led restructuring recently, creating not only a cloud of uncertainty over the yard’s existing orderbook but also highlighting how severe market conditions could become even for prominent shipbuilders.

Media reports indicated that many other leading yards in South Korea are also experiencing significant financial difficulties.

The crisis in shipbuilding industry is expected to translate into delays for tonnage ordered at troubled yards. However, the chances of cancellations are considerably less likely, particularly for tankers where construction is already under way.

Furthermore, in South Korea, where the bulk of the tanker orderbook is contracted, large shipyards provide a vital contribution to the domestic economy; as such, further government intervention and support is likely.

To conclude, the number of new tankers expected to commence trading over the next 18 months could be lower than previously envisaged. The recent lull in new tanker investment will also apply the brakes on the pace of expansion in supply in two/three years down the line.

All of this offers welcome news for owners, providing that cautious approach to new investment continues, Gibson concluded.

However, since this report was written, newbuilding tanker orders have resurfaced in the past week, the highlight of which was John Angelicoussis’ Maran Tankers and Maran Gas Maritime ordering two firm, plus two optional VLCCs from Daewoo priced at $84.6 mill each and two plus two, 180,000 cu m LNGCs at $185 mill each.

The contracts were said to have been signed over lunch on 8th June at the shipowners’ Syngrou Avenue headquarters during a flying visit by DSME president Sung-leep Jung, to Athens to attend Posidonia.

Elsewhere, Hyundai was said to have won orders for two Ice Class coated Tier III compliant LR3s from AMPTC for $70 mill each. They are due for delivery in 2018.  

Enesel was said to have contracted two Aframaxes at Daehan for $45.5 mill each. The Tier II compliant tankers are due for delivery next year.

South Korea’s cash strapped Sungdong has won its first order this year to build two 74,000 dwt tankers plus an option for another two from an unnamed Greek shipping company for an estimated $44 mill each, according to South Korean newswire Pulse.

Iranian shipping company Islamic Republic of Iran Shipping Lines (IRISL) and oil producer Iranian Offshore Oil are reportedly close to ordering $2.4 bill worth of ships from South Korean shipyards.

However, firming the orders depends on financing which is not in place thus far, according to Reuters.

IRISL was thought to have signed a memorandum of understanding with Hyundai Mipo Dockyard for up to 10 product tankers and at least six bulk carriers. 

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