- Rates for crude tankers have been abysmal due to an oversupply of vessels.
- Demo prices have been on an upward climb for quite a while and long thought to induce more scrapping activity.
The Aggressive Tanker Scrapping we are witnessing today is due to the onslaught on crude tanker segment which is currently suffering from an oversupply of vessels. But nobody knows how bad the situation is. Towards the end of 2017, Ralph Leszcyznski, head of research for Banchero Costa, said that the current state of the tanker market was a “supply crisis”, says a report published in the SeekingAlpha.
The article further illustrates how the market is suffering without significant gains on the demand side to balance out this oversupply. The key to a market recovery rests in rebalancing of the supply side. This could occur either through the scrapping of older tonnage thereby thinning out the global fleet, or by major slippage in the planned pace of new orders hitting the water.
Scrapping older vessels
Scrapping of older vessels presents the most immediate solution to the problem. So, how are we progressing on that front?
After extremely low rates in August of 2017 led to the highest amount of scrapping in several years, certain points became clear:
- Owners typically act in the individual best interests of their company, but often these same decisions are echoed across the industry creating a sort of collective action.
- Low charter rates really took hold in Q3 of 2017 across all classes as new builds hit the water. These discounted rates, though, may be exactly what was needed in order to inspire owners to begin evaluating the future of many older vessels.
- Aside from low rates, a narrowing gap between declining asset prices and increasing demolition prices may also provide a bit of motivation for owners to begin parting with older tonnage. This is most pronounced in the VLCC segment.
- The steel market is projected to strengthen in the coming months (September and October are typically strong), so owners may begin weighing these options very soon.
Therefore, it is possible that we may see an increase in demolitions based on all the above dynamics. If this does manifest, it could bring some much needed relief to an oversupplied tanker market and hasten a recovery.
For full report, please click here
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Source: Seeking Alpha
