26 December 2017

Tanker delivery/newbuilding profile causes problems

This year is on track to be the second largest 12 months for dirty tanker deliveries on record, behind 2009, according to an industry note from McQuilling Services.

Through the first 10 months of the year, the consultancy recorded 133 DPP tankers entering the market, compared to 84 over the same period in 2016. At the same time, 54 vessels exited the trading fleet, bringing the net growth to 79 ships year-to-date (end October).

This represents an acceleration of deletions when compared on a year-on-year basis to both 2016 and 2015.

Over the final two months of 2017, McQuilling expected another 32 DPP vessels to join the fleet, while four are on track to be removed. In total, the DPP fleet is expected to grow by 104 vessels or 4.6% in 2017, representing the highest year of growth on a net basis since at least 2000.

Within the VLCC sector, 44 vessels have hit the water, while about 22 were removed from the trading fleet. The average age of the departing ships was 19.7 years. The deletion activity was evenly split with 11 vessels sold for demolition and 11 converted to storage operations.

Through the remainder of this year, nine more VLCCs are set to join the fleet, while just one  is likely to be removed.

The Suezmax fleet has experienced the greatest net growth year-to-date with 52 additions and 11 deletions, or a net total of 42 ships. Frontline and Anangel Shipping were major contributors taking delivery of six and four Suezmaxes, respectively.

Regarding those vessels removed from the fleet, the average age was 21.4 years and just one ship , ‘Front Ardenne’ was sold for conversion, while the remaining vessels were sold for demolition. The last two months of 2017 are expected to bring 12 more ships into the market, while one vessel is projected to be deleted.

Turning to dirty Aframaxes, 33 vessels have joined the fleet, while 19 were removed since the beginning of the year. On a net basis, McQuilling forecast another nine vessels will join the fleet before the end of this year, which would meet its full year expectations of 44 additions and 21 deletions. The 2017 expectations for Panamax fleet growth were fulfilled with three more ships on the water this year, while two were sold for demolition.

Regarding the clean segment, 64 tankers were added to the fleet, while just 16 ships exited, resulting in a net growth of 48 units year-to-date. Over the same period last year, net fleet growth was 38 vessels with 48 additions and just 10 deletions.

Full year fleet growth is likely to remain above the 2016 figures, as another 26 deliveries and 12 deletions are expected through the final two months of 2017.

LR fleet growth has also trended above last year’s figures with 43 additions and four deletions year-to-date, a net growth of 39 vessels, which compares to 37 over the same period of 2016.

Of the 43 deliveries this year, 30 have been LR2s and 13 were LR1s, while the four deletions have been split evenly between the two sectors. Over the November/December period, another nine LR2s will join the fleet and three will exit, while the LR1 fleet is on track to add another six vessels.

As for MRs (excluding chemical tankers), a net fleet growth of 11 ships is forecast, as MR2s expand by 14 units, while the MR1 fleet is on track to fall by three units this year. Some 18 MR2s were delivered year-to-date, while 10 ships were reported sold for demolition or conversion. Over the same period, three MR1s were delivered and two exited; however, McQuilling said it expected another four to be removed before the year ends.

Year-to-date, 165 tanker orders were placed with 54% being in the DPP segment. The VLCC sector saw 47 vessels ordered through the first 10 months of 2017, which is more than double seen over the whole of 2016 (21 vessels).

For Suezmaxes, 18 vessels were contracted, including12 taken by the Chinese Bank of Communications. Newbuild contracting in the Aframax sector also remained healthy with 25 orders through October, compared to 23 orders placed in the whole of 2016.

On the clean side, 12 LR2s were ordered, while no activity was witnessed in the LR1 newbuilding market year-to-date. Most of the clean ordering activity involved MRs with 52 MR2s and 11 MR1s contracted, which compares to 45 over the whole of 2016.

October was an interesting month, as no vessels >27,500 dwt from the DPP and CPP sectors were ordered. McQuilling said that we have not seen the end of newbuild contracting for this year with a potential to increase over the winter months, on the back of historically low asset prices, which presents attractive investment opportunities, as well as upcoming regulatory constraints.

The consultancy also forecast that in 2018, there is likely to be a slowdown in average inventory net fleet growth to 3.3% for the DPP sector, with 139 deliveries and 103 deletions projected; however, this is still well above the historical average of 2.3%.

On this basis, freight rate weakness is likely to persist next year, as supply growth out paces demand. Beyond this point, an accelerated deletion profile is on track to negatively pressure fleet growth further, dropping to 1.6% in 2019, helping to re-balance markets, McQuilling said.

For the CPP sector, average net fleet growth, this year, is on track to remain relatively flat when compared to 2015/2016, at 2.5%. In concert with the DPP sector, net fleet growth is forecast to fall beyond 2017 as higher deletions are forecast on the back of an ageing MR fleet.

In 2018, net fleet growth is projected at 1.3%, the lowest level seen since 2002, which is on track to provide some upward pressure for freight rates.

Additional support will stem from a significant decline in the growth of the chemical tanker fleet, which is projected to expand by 5.1% in 2018, well below the historical average of 11.9%. This comes after 10.4% growth projected for this year, McQuilling concluded.

Source: tanker operator. 24 November 2017

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