Those who predicted that 2018 would be yet another challenging year for the tanker market, after a dismal 2017 as well, haven’t been far off. In fact, as shipbroker Charles R. Weber reiterated in its latest weekly report, things could very well stay that way for quite some time. In its latest analysis, the shipbroker said that “crude tanker earnings have commenced 2018 at seasonal lows not observed in decades as a large, ongoing newbuilding program continues to undermine fundamentals. Crude tanker earnings declined during 2017 by an average of 45% from 2016, led by a 46% decline in VLCC earnings to ~$25,309/day while Suezmaxes shed 45% to ~$13,838/day and Aframaxes fell 44% to ~$13,101/day. The annual averages in each segment were heavily supported by seasonal strength during 1Q17 which appears to elude the market presently, implying a potentially horrendous year for average earnings during 2018. Our base expectation is that VLCC earnings will conclude the year with a 30% y/y decline to under $18,000/day. We project a 40% y/y decline for Suezmax earnings to $8,250/day and a 12% y/y decline in Aframax earnings to ~$11,500/day”.
According to CR Weber, “supply Fleet growth remains the key catalyst to the prevailing earnings environment with a long list of units ordered between 2013 and 2014 delivering during 2016 boosting capacity. A subsequent wave of orders penned during the strong earnings environment of 2015 extended high levels of newbuilding deliveries during 2017 – and is ongoing. Phase‐outs concluded 2017 considerably above expectations as stronger $/ldt values against poor earnings incentivized a surge in demolition sales activity across all size classes while an improving offshore market saw conversion works progress on a number of units held for conversion in the VLCC space. All told, some 23 VLCCs were phased out during 2017 – a considerable increase from the just two and three units phased‐out during 2015 and 2016, respectively, and the most since 2011. Twelve Suezmax units were phased out, up from zero and one during 2015 and 2016, respectively and the most since 2012. Thirty‐three units were phased‐out from the Aframax/LR2 asset class, up from 6 and 9 during 2015 and 2016, respectively and also the most since 2012”.
The shipbroker added that “despite the stronger phase‐outs, net fleet growth was still high during the year (if lower than the more extreme levels observed during 2016), clocking in at 4.0% for VLCCs, 8.4% for Suezmaxes and 3.2% for Aframax/LR2s. For 2018, we project net fleet growth of 3.9% for VLCCs, 3.2% for Suezmaxes and 3.3% for Aframax/LR2s. While these levels are broadly within range of historical annual averages, coming on the back of the past two years’ fleet growth levels, any positive net supply growth would only serve to delay a progression into earnings recovery”.
In terms of demand, CR Weber says that “collectively, crude tanker demand rose by 4.0%, though a secular look shows that only VLCCs concluded in positive y/y territory. Demand for VLCCs returned to growth during 2017, posting an increase of 11% after a contraction of 4% during 2016. The gains were supported, in part, by an increase in voyages to Asia from the Atlantic basin, particularly during 1H17 due to OPEC supply cuts heavily distributed to Middle East producers and during September and October as US crude exports surged amid long‐lasting US Gulf Coast‐area refining outages after Hurricane Harvey and other storm systems”.
“Inversely to VLCCs, Suezmax demand was undermined during 1H17 due to OPEC supply cuts as more voyages from the Atlantic Basin to Asia oriented to VLCCs reduced cargo availability for the smaller class. These losses were partly offset by rising US crude exports (28% of which were serviced by Suezmaxes), but overall demand for the class concluded with a 1.3% y/y contraction. Aframax demand was the hardest hit among its crude tanker counterparts. Like Suezmaxes, demand losses on key routes were partly offset by gains in ex‐USG crude cargoes (for which the class serviced the lion’s share of 42%), but these did little to stem contraction in intraregional Caribbean voyages, and contractions in nearly all other markets. Overall, the class saw demand decline by 10.8%”, CR Weber concluded.
Source: Hellenic Shipping News.