While the tanker market was
previously counting on the implementation of the IMO Ballast Water Management
Convention in September 2017 to raise scrapping levels amidst low earnings as
well as high retrofit costs (US$1 to 2 million), the Marine Environment
Protection Committee (MEPC) recently decided to delay its implementation by two
years. The convention requires all existing vessels to install approved Ballast
Water Treatment Systems at the first renewal of the International Oil Pollution
Prevention (IOPP) survey after the enforcement date.
The delay is expected to slow
demolition activity over the next few years, subsequently postponing any
substantial recovery in tanker rates which have been heavily pressured by the
perennial state of tonnage oversupply. According to BIMCO, 2.6 million dwt of
tanker capacity was sold for demolition in 2016 while 1.3 million dwt was
demolished from January – April 2017.
While overall demolition
levels in 2017 are expected to outpace that of last year, the relentless pace
of newbuild deliveries and recent uptick in orders still point to weak supply
side fundamentals. At present, vessels older than 15 years account for around
23% of the overall crude tanker fleet. The presence of older tonnage has
weighed heavily on freight rates by offering significant discounts, with spot
VLCC rates for the benchmark AG/Japan route currently around 48% lower than at
the beginning of the year. The evident reluctance of ship owners to scrap
ageing tankers spells a long way to recovery for the tanker market.
Source: OFE insights
Source: hellenic
shipping news. 21 July 2017
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