Tanker Market Outlook: Emerging Signs of Recovery Says New Analysis

MarineLink.com
Thursday, January 23, 2014
VLCC: Photo CCL

As we start 2014, signs of a recovery are starting to emerge.  On the back of lower energy costs, the US economy is set to grow and unemployment levels have been falling, reads the '2014-2018 Tanker Market Outlook' by McQuilling Services.

Tanker Profile
The imbalance of tanker supply in relation to ton-mile demand will have an impact on spot rates.  While 2012 saw deliveries and deletions under/over our projections by 20%, history was unable to repeat itself.  Although tanker deliveries from yards were less than expected in 2013, the same was true in regard to vessels being taken out of the trading fleet.
 
In parallel to this, new tanker contracting in 2013 rose to 392, which was the highest level since 2007.  This was led by a wide margin for MR2 vessel orders (223 orders), which continues to cement our belief that clean tanker rates are in store for a supply driven contraction.  This reality will gradually emerge as previous years’ orders deliver from yards, especially in 2015 and 2016.  Our concerns are also supported by our finding that the average age of the MR2 trading fleet, omitting IMO 1 and 2 classifications, is approximately 10 years old.  As these new tankers are added to the trading fleet, rate pressure could be exerted across the spectrum.
 
New tanker contracting was relatively limited for the other tanker classes, although interest in VLCCs rose to the highest level since 2010.  While this can be viewed in a somewhat bearish context, several of these orders appear questionable due the owners and yards associated with them.
 
Over the next 12 months, and throughout the forecast period, the pace of fleet trimming will play a vital role in fundamentals.  This, in turn, will be driven by charterer vetting requirements, technical restrictions at major load/discharge ports and trading economics.  For the larger tanker classes, owners could lay the foundation for a meaningful shift in market fundamentals by sending vessels over 15 years old to the breakers.
 
This abundance of tonnage is somewhat masked by the continued and wide spread utilization of slow steaming.  The other factor exacerbating the oversupply of tonnage is owners’ employment of voyage triangulation.  This practice reduces the amount of vessels required to meet global demand as one vessel effectively moves two cargoes.  We have provided two forecasts for triangulated routes in this year’s report in order reflect the current operating environment.
 
Demand for floating storage should remain subdued as market participants appear fixated on developments in North America.  Despite these headlines, an often overlooked fact is, that since 2005, global oil supplies have only increased by a net of 1 million b/d (JBC Energy).  This sets the stage for the potential for a tighter supply situation.
 
Despite the current rally that is present in some tanker sectors, we believe that rates are likely to be pressured in 2014.  This is primarily driven by limited demand growth and an abundance of supply.

Asset and Finance Markets
The European banking community will undergo asset quality reviews from regulators as part of the new Basel III guidelines that will come into effect in 2014.  We remain cautious about traditional financing options that will be available to owners prior to this review.  We have already witnessed the exit of major lenders from the industry while other players are reducing exposure and implementing more strict lending parameters.  The increased capital ratio requirements that will need to be met by banks as part of Basel III may result in further asset sales including non-performing loans on vessels.  In this regard, we have seen private equity investors return to the industry including OakTree Capital and Third Point.  These companies have been active acquiring distressed loan portfolios.
 
During 2013, asset prices appear to have reached an equilibrium.  Newbuilding prices declined by 1.8%, while secondhand vessels remained flat.  Investor interest returned to the industry with private equity contributing approximately US $4.7 billion in capital.  An area of particular interest for investors remains in the MR2 product tanker segment which saw prices increase by 3.6% on average, with secondhand vessels appreciating by 5% year-on-year.  

Asset Forecast
Utilizing an enhanced asset price forecasting model, combined with experiential adjustments, we project modest strength for VLCCs and a weaker asset value environment for the Suezmax and Aframax sectors.  For the clean product tankers, we are less optimistic due to the current projection regarding an oversupply together with a strong MR2 delivery in the short-term.
 
Our investment analysis for the full range of tankers indicated that prices for vessels are overvalued, assuming a 10% discount rate.  Additionally, at current prices, owners and investors would require significant increases in our forecasted TCE levels in order to break-even on an investment.
 
As we begin 2014 the tanker market appears to have the sentiment of the market in its favor.  Several tanker classes are seeing robust earnings that have been driven by a host of factors from weather delays to vessel dislocation.  Although this is a welcome development for owners that have recorded heavy losses in recent years, our analysis of market fundamentals lead us to believe that the rally will struggle to maintain its trajectory.
 
Source: McQuilling Services Industry Note No. 2 – 2014-2018 Tanker Market Outlook

 

Maritime Reporter March 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Schlumberger Announces Q1 Results

Schlumberger Limited (NYSE:SLB) today reported first-quarter 2014 revenue from continuing operations of $11.24 billion versus $11.91 billion in the fourth quarter of 2013, and $10.

Russia Ships First Oil From Offshore Arctic Platform

President Vladimir Putin hailed Russia's first shipment of Arctic offshore oil on Friday, saying the platform decried by environmentalists will help Moscow expand its global energy markets share.

Shipping Turns From Banks to Equity Markets for Cash

Shipping companies are turning to equity markets to fill a growing funding gap, betting that investors hungry for decent returns will provide capital to a sector

Tanker Trends

Pirates Approach Tanker in Bab El Mandeb

The U.S. Navy Maritime Liaison Office in Bahrain (MARLO) has advised that on or about 12:30 UTC on 14 April, the Master of an oil tanker reported being approached by a white-blue skiff in position 12.

Shippers Turn to Equity Markets as Sector Eyes Recovery

Shipping companies are turning to equity markets to fill a growing funding gap, betting that investors hungry for decent returns will provide capital to a sector

YPF Tenders to Buy Fuel Oil for June

State-run oil company YPF launched its second fuel oil tender in April, this time to buy two 50,000 metric ton cargoes (some 375,000 barrels each) to be received

Finance

India's Reliance Q4 Sales Rise

Indian energy company Reliance Industries Ltd posted nearly flat fourth-quarter profits, in line with estimates, as a slimmer margin in its oilrefining business offset higher revenue.

Schlumberger Announces Q1 Results

Schlumberger Limited (NYSE:SLB) today reported first-quarter 2014 revenue from continuing operations of $11.24 billion versus $11.91 billion in the fourth quarter of 2013, and $10.

New sanctions threats as Ukraine stalemate goes on

A day after an international deal in Geneva to defuse the East-West crisis in Ukraine, pro-Russian separatists vowed not to end their occupation of public buildings

News

DNV's accredatation for Neosho Memorial

Neosho Memorial Regional Medical Center, Chanute, has completed a new accreditation process from Det Norske Veritas Healthcare. By earning accreditation, Neosho

India's Reliance Q4 Sales Rise

Indian energy company Reliance Industries Ltd posted nearly flat fourth-quarter profits, in line with estimates, as a slimmer margin in its oilrefining business offset higher revenue.

Coast Guard tactical air squadron holds change of command ceremony

Capt. Kevin P. Gavin relieved Capt. Donna L. Cottrell as commanding officer of Coast Guard Helicopter Interdiction Tactical Squadron Jacksonville during a change of command ceremony at HITRON Friday.

 
 
Maritime Contracts Maritime Security Naval Architecture Navigation Offshore Oil Pipelines Salvage Ship Electronics Ship Simulators Shipbuilding / Vessel Construction
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2306 sec (4 req/sec)