Newbuilding in the tanker market is staying steady, reflecting a positive demand story, Barry Luthwaite reports.
Tankers have enjoyed a bullish trading market for the last two years and kept newbuilding ticking over. The overall picture is still positive for all types, with a substantial number still being ordered. Owners ordering today are likely to miss the best of a strong market and with little scrapping, there are obvious fears of overtonnaging.
The remarkable story in the markets revolves around products and crude tonnage, which shows no sign of slowing. Pricing is a big inducement, as it is barely moving due to fierce competition between builders for business after the drought of dry tonnage interest. There is a firm belief that scrapping will again start moving considerably in two years as environmental legislation tightens its grip.
Crude oil business has produced some remarkable investment figures, with record newbuildings placed in a short space of time. This is in response to changing markets and trade patterns. No longer does the Middle East enjoy a near monopoly in choice with different grades of crude and offshore loading terminals gaining ground. A major factor has been the growth in shale oil from the USA. Market balance is still about right for supply and demand but the current pace of ordering may need a closer look.
The first six months of 2017 produced a bumper total 42 VLCCs and 15 Suezmaxes. These added a total of 13,321,776 dwt and 2,378,128 dwt respectively to a booming orderbook. The order backlog overall points to 126 VLCC’s and 107 Suezmaxes due for commissioning in the next 2-3 years. Owners favour series which induces some discounting in pricing. Against the newbuilding commitments 738 VLCCs and 535 Suezmaxes are currently trading.
Shipbuilders still struggle against massive debts and cutbacks in capacity. The tanker boom has, in fact, been their saviour with 50 per cent of VLCC business going to South Korea. Not only have shipyards enjoyed the crude boom, but high numbers of products and specialist chemical tankers have also been committed. These are from owners who have endured their longest recession, which lasted seven years prior to the start of any meaningful recovery from the financial collapse of 2008.
Strength in numbers has now proved the key to potential success as mergers and complete fleet acquisitions take place. Smaller owners are likely to cease trading. For engine manufacturers all these orders have eased the pain of the bulk carrier drought. However it is noticeable that mounting numbers of IMO Tier II engines are still being offered to owners by shipbuilders. Many of these are left over from cancelled contracts and are proving a useful negotiating ploy for new business.
On each newbuilding – depending on size – savings of US$1-3 million may be achieved as they allow legally higher emissions. An original keel-laying deadline by the IMO regulators has been increasingly flouted. Some owners are delighted as they consider the deadline imposed was too tight. It is doubtful also that all these tier II engines are readily available from the shipyard yet engine builders are complying with requests for same.
Against this it must be said that the majority of engines will be Tier III models. However in 2017 – well after the deadline – a total of at least 20 Tier II engines have so far accompanied tanker orders and especially for products tonnage yielding much-needed business which might otherwise not have been there.
There is a sold optimism for the chemical sector. Owners have made moves for newbuildings, especially in the short sea trades. It is increasingly difficult for Scandinavian owners in particular to trade vessels for more for than 20 years despite being in excellent condition.
Some vessels are being curtailed by owners at 15 years of age. This has boosted business for China, with fully stainless steel construction orders being procured. Several of these contracts in the smaller sizes have been specified as LNG ready with dual fuel propulsion. Owners are wary however at the woeful inadequacy of global LNG bunkering facilities and bunkering tankers which influences LNG propulsion decline.