Tanker Market: Demand for Larger Tonnage on the Up



It seems that the recent surge of interest from ship owners regarding the acquisition of more modern tonnage was based on some interesting developments from the demand side of the market. In its latest weekly report, shipbroker Charles R. Weber said that “demand for VLCC and Suezmax time charters of at least six months heated up to unseasonable heights during March and April, after a very slow start to the year. The trend came as time charter rates corrected from temporary support received amid the strong final months of 2016, creating fresh opportunities for charterers to get into the market at low rates to minimize exposure to forward volatility”.

According to CR Weber, “for its part, the supply/demand positioning proved surprisingly supportive as well. Supply growth progressed largely as expected through the start of 2017, characterized by a high rate of deliveries but at levels below those implied by orderbook figures due to ongoing slippage efforts. However, on the demand side, the headline pessimism accompanying OPEC supply curbs eased as ton‐miles instead received a boost from Asian crude importers sourcing crude from supply regions further afield than the Middle East and US crude exports were augmented by price support from OPEC curbs”.

The shipbroker added that “with these developments easing concerns about the depths of potential earnings lows for 2017, charterers could also look more meaningfully towards the stronger prospects facing the market from 2018. This includes a large backlog of older units likely to find their exit from trades hastened by enforcement of Ballast Water Management compliance from the first five‐year IOPP survey after September 2017 and the subsequent 2020 0.5% global sulfur cap. Based on our base case timeline of deliveries of the current orderbook and phase‐outs, we project that VLCC net fleet growth will drop from 6.0% during 2017 to 4.7% during 2018 and ‐3.2% during 2019 while Suezmax net fleet growth will drop from 10.0% during 2017 to 0.6% during 2018 and ‐1.6% during 2019”, CR Weber concluded.

Meanwhile, in the VLCC tanker market this past week, CR Weber said that “a rebound in fixture activity in both the Middle East and West Africa markets saw rates stabilize earlier during the week following earlier losses and conclude thereafter with fresh gains. The Middle East market observed an 18% weekly gain to 26 fixtures, of which COAs accounted for just 8%, or the lowest proportion of total activity since the conclusion of 2016. Meanwhile, the West Africa market saw fixture activity rebound to a four‐week high of seven fixtures from last week’s YTD low of just two”.

It added that “with 93 May Middle East cargoes covered to‐date, we anticipate that a further 34 will materialize through the end of the month’s program. Against this, position lists show 44 units available through end‐May dates. Once likely draws thereof to service West Africa demand are accounted for, surplus tonnage is projected to narrow to between 5 and 8 units. This compares with 12 projected surplus units at the end of the second decade – and represents a four‐month low. This places prevailing AG‐ FEAST TCEs well below levels dictated by fundamentals and raises prospects for an imminent rally, subject to psychological drivers of sentiment that are highly correlated to the timing of inquiry, irrespective of supply/demand fundamentals. In our base assumption, demand will post further gains during the upcoming week as charterers seek to cover remaining May requirements, driving more substantial gains than those observed this week. Thereafter, the positive trajectory should subside on a pause between May and June dates, before the low May tonnage surplus carrying over into June dates enables a return to positive rate progression”, the shipbroker concluded.

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Source: CR Weber


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