New VLCCs seen running at a loss for 24 months
Shipping News
Published November 17, 2011
New VLCCs seen running at a loss for 24 months
Oversupply of ships, prolonged slump in freight rates to blame, says bank
(LONDON) Very large crude carriers (VLCCs) that start trading this year and next will run at a loss for at least 24 months, as supply of new ships outpaces demand and prolongs a slump in freight rates, Arctic Securities ASA said.
Choppy waters: Twenty-five per cent of all tanker contracts are likely to be cancelled, up from 20 per cent forecast previously, with scrapping of older ships also increasing over the next two years
Asset values will also decline further, even as the fleet grows at a slower- than-expected pace, the Oslo-based investment bank wrote in a note on Tuesday.
About 50 new VLCCs started trading this year, increasing the fleet by 10 per cent, Arctic wrote. New tankers on order at shipyards comprise about 19 per cent of the existing vessel capacity, according to the bank’s estimates.
‘We strongly advise against ordering new crude tankers over the next three years as ordering should grind to a halt in order to balance the market,’ Erik Nikolai Stavseth, an analyst at Arctic, wrote in the report. ‘If one was interested in buying a crude tanker, it could likely be done at a favourable level in the second hand market.’
Twenty-five per cent of all tanker contracts are likely to be cancelled, up from 20 per cent forecast previously, with scrapping of older ships also increasing over the next two years, according to Arctic.
Tankers scrapped will advance to 16 million dwt in 2012, from 9.8 million dwt in 2011, Arctic wrote. Scrapping reached 19.7 million dwt in 2010, the highest since at least 2006.
The crude tanker fleet will grow 6.3 per cent in 2011 and 3.3 per cent in 2012, lower than a prior forecast for next year of 4.1 per cent growth, according to the report. Arctic estimated that fleet use would be at 81 per cent in 2012, level with this year, increasing to 83 per cent in 2013 and 85 per cent in 2014.
‘The oversupply of vessels is ‘killing’ the chances for a significant rate recovery in 2012,’ Mr Stavseth wrote in the report, adding that Arctic sees a ‘slight uptick’ in 2013 on current assumptions.
Demand for crude shipped by sea will reach 41.3 million barrels a day in 2012, from 40.5 million barrels in 2011, according to Arctic, which estimated 2013 seaborne crude trade at 42.7 million barrels a day, and a daily 43.9 million barrels by 2014.
Seaborne imports to the US, the largest destination by country, will fall to 7.3 million barrels a day in 2015 from 8.3 million in 2010, according to the report. Each one million barrel a day decline in total imports from the Middle East Gulf to the US equates to 35 to 40 VLCC cargoes, Arctic calculated. Closings of refineries on the East Coast will contribute to the decline, according to the report.
Imports by China, the second-largest destination for seaborne crude after the US, will gain 10 per cent this year, Arctic wrote. They will rise to 5.6 million barrels a day in 2012 and reach 7.5 million barrels in 2015, according to Arctic. — Bloomberg