TANKER MARKET INSIGHT

Transcription

1 TANKER MARKET INSIGHT April 18 Research Department, Strategic Development

2 Mar-17 Apr-17 May-17 Jul-17 Aug-17 Oct-17 Nov-17 Jan-18 Feb-18 Mar-17 Apr-17 May-17 Jul-17 Aug-17 Oct-17 Nov-17 Jan-18 Feb-18 $ s / day $ s / day Monthly Summary Large crude tanker rates rebounded in March, but remain at very low levels March review: VLCC rates found a new low at the start of the month, however returned to ~$1,/day toward the end of the month as Asian refineries came out of maintenance. Opposite to the VLCC market, Suezmax rates were stronger at the start of the month thanks to increased demand in the Black Sea/MED, but softened during the second half of the month. Pacific Aframaxes struggled due to ongoing refinery maintenance in Asia, while decreased volumes out of Libya and Venezuela impacted the Atlantic market. LRs found positive support from an increase in floating storage and an arbitrage opening up for long haul trades (e.g. UKC to Australia). April outlook: VLCC rates may find some support from high levels of scrapping and as refineries increase throughput ahead of the peak summer demand months. We expect the mid-sized segments to remain flat in April, however increased Nigerian production, a tightening VLCC market, and increased Russian exports out of the Baltic could provide some support to rates. Wild cards: The US recently announced plans to impose tariffs of $5 billion on Chinese goods, prompting China to retaliate with similar tariffs on American imports. It is unclear at this time how far these tariffs will go as the two countries go tit for-tat. If tariffs were to extend to the energy space, it could have implications for crude tanker trades (particularly if it leads to a reduction in long-haul crude movements from the US to China). The US has given a deadline of May 1 th for European allies to amend the 15 nuclear deal with Iran or they will refuse to extend waivers of US sanctions, which could lead to a reduction in Iranian crude exports. New Venezuelan sanctions may also be on the cards, as President Trump s newly appointed National Security Adviser and Secretary of State embrace a more hardline foreign policy Clean Spot Rates LR MR Crude Spot Rates Aframax Suezmax VLCC Source: 9% of Clarksons

3 Spot Market Review and Outlook Tanker demand could find support in Q from higher refinery throughput Segment Feb 18 Mar 18 Spot Rates ($/day) Source: 9% Clarksons VLCC 5,1 5, Suezmax 7, 9,1 Aframax (Pacific) Aframax (Atlantic) 8, 7,3 8,5 8,1 LR 7,8 11,9 March Review VLCC rates struggled at the start of the month as rates found a new bottom. However, rates started to find some relief toward the end of March as refineries in Asia came out of maintenance. By the end of the month rates reached ~$1,/day for the first time since January. As expected, Suezmax rates found some support at the beginning of March due to an increase in cargoes from WAF, supported by additional demand in the Black Sea / MED. However, rates gave up some gains toward the end of the month, despite a stronger VLCC market. Tanker demand in the Pacific remained subdued in March as regional refinery maintenance approached a seasonal peak. Baltic rates found some support at the start of March due to weather conditions. However, this was offset by short-term outages in Libya at the start of the month and a continued decline in Venezuelan crude exports to the USG/Caribs. LR rates were the highest since October 17 as an increase in floating storage and an open arb for long haul product trades (e.g. gasoline moving from UKC to Australia) gave support to rates. April Outlook Saudi crude exports are expected to remain flat in April at ~7mb/d. However, we expect high levels of VLCC scrapping to continue, which should help tighten fleet supply and allow rates to recover as refineries ramp up throughput ahead of the peak summer demand season. Suezmax demand should continue to find some support from a recent increase in Nigerian oil production, which recently hit mb/d for the first time since October 15. A stronger VLCC market could also provide some support. Rates are expected to remain relatively flat in April, though an increase in imports as refineries exit maintenance could provide some additional demand. Heavy Russian refinery maintenance ahead of the FIFA World Cup in June could lead to an increase in crude exports from the Baltic and Black Sea during April. However, this may be offset by a continued decline in Venezuelan crude exports. LR rates appear to be easing as we enter April. Asian imports of Western naphtha remain relatively subdued due to a closed West-East arb, with an estimated 1.3 MT arriving in April. 3

4 Mar-1 Jun-1 Sep-1 Dec-1 Mar-17 Mar-1 Jun-1 Sep-1 Dec-1 Mar-17 $ s/day $ s/day Time Charter Market VLCC 1-year TC rate sinks to lowest since Q-13 Broker Assessed Time Charter Rates 1 year time charter rates ($/day) 3 year time charter rates ($/day) Feb 18 Mar 18 Feb 18 Mar 18 VLCC,5 1,5 8,5 7,5 Suezmax 1,5 1,5, 19,5 Aframax 1,75 1,5 1,75 17, LR 15,5 15,5 17,5 17,5 MR 1, 13,75 1,75 1,75 Clean 1 Year Time Charter Rates Crude 1 Year Time Charter Rates MR LR Aframax Suezmax VLCC Source: Average of Clarksons, Braemar ACM, and Poten

5 Million DWT S&P Market and Fleet Statistics The tanker fleet shrunk in size during Q1-18 as scrapping outweighed deliveries S&P Activity Hansa sold the Aframax HS Medea (HHI/3) to Coral for USD 1.7M. A month earlier, Coral had purchased the Aframax HS Carmen (HHI/3) for USD 11.7M from the same Sellers. Diamond Tankers sold x Japanese built Aframaxes (1, x 11, 9) to Ionic (Greece) for USD 11M en bloc. The price is in line with our internal estimates. VLCC Vega Trader (Universal/3) is rumored to be sold to New Shipping (Greece) for USD 1.5M with d/dock due. If confirmed, this sale would highlight a decline in prices of older VLCCs, particularly with d/dock due (broker estimates currently at USD 5M for a 15 year old VLCC). A two-tier pricing structure has formed. Modern asset prices have been holding steady as there is still buying interest; however, liquidity has been low as owners are unlikely to sell at these levels. Older tonnage (15+ years old) faces downward pressure as scrap prices, which propped up the floor, have softened % 3.8% Total Tanker Fleet Growth Scrapping Deliveries Net Growth (% of Fleet) 1.7% 1.3% 3.% Source: Clarksons, internal estimates.%.8%.3%.% 1% 8% % % % % -% -% Asset Values (USD million) NB 5yr 1yr VLCC Suezmax Aframax LR MR (+1.) (+1.) (+.5) (+.5) (+.3) (+1.) (+1.) (-1.) (+1.) (+.5) (+1.) (-3.) (+1.) (+1.5) (+.5) yr Source: Clarksons (Note: values in brackets indicates change from last month Fleet Statistics The global tanker fleet shrunk by.8 mdwt, or.1%, in the first quarter of 18 as scrapping outweighed new tanker deliveries. A total of 8 mdwt was scrapped in Q1-18, which was the highest quarterly scrapping total since Q3-198 (see back page article). We estimate that the tanker fleet will grow by.3% in 18. However, we are assuming a 18 scrapping total of 1 mdwt vs. 8 mdwt in Q1-18 alone. If scrapping maintains its current pace for the rest of the year then fleet growth in 18 may be close to zero. Forecasted Fleet Growth by Size Range VLCC Suezmax Aframax LR Panamax MR % 3.%.9% 3.%.8% 1.% 19.%.%.%.9%.8% 3.9% Source: Clarksons, internal estimates 5

6 Change in Demand (mb/d) Percent Economy and Oil Demand Improving economic and oil demand forecasts, but with increasing political risks Economy Outlook The OECD recently increased their forecast of global economic growth in 18 and 19, in line with recent forecast upgrades from the IMF and World Bank. According to the OECD, new tax reductions and spending increases in the US and additional stimulus in Germany are the key factors behind the upward revision. However, the OECD highlights the risk of escalating trade tensions that could be damaging for global growth and jobs. USA Europe Japan China GDP growth is projected to pick up over 18 19, partly due to tax reductions and higher government expenditure. Growth is set to remain robust in due to supportive monetary policy, improving labour markets, and higher confidence. GDP growth is set to remain around 1.5% in 18 before easing to around 1% in 19. Growth surprised on the upside in 17, helped by a strong rebound in exports, but is set to soften to just below.5% by 19. Oil Demand Outlook The IEA has once again raised their forecast of global oil demand growth in 18 to ~1.5 mb/d. The increase reflects stronger observed demand in the OECD over the past few months. Over the past two months, the IEA has increased their 18 demand forecast by ~ kb/d. Brent crude oil prices have remained above $ / bbl since Oct 17, and reached $7 / bbl in both January and March 18. Prices continue to be supported by lower crude stock levels (close to the 5-year average) and the threat of oil supply disruptions (e.g. Venezuela) World GDP Growth Average of IMF, OECD, UN, and World Bank Global Oil Demand Growth Average of IEA, EIA, and OPEC

7 m. DWT No. Ships Demolition Derby Tanker scrapping in Q1-18 was the highest in over 35 years Think back to 198. E.T. the Extra-Terrestrial was top at the box office and Michael Jackson s Thriller was number one in the charts. Sony released the first commercial CD player, and a gallon of gasoline cost just 9 cents. It was also the last time we saw 8 mdwt of tankers scrapped in a single quarter until now. Tanker scrapping has started 18 with a bang, as a combination of low freight rates, high scrap prices, an aging tanker fleet, and the impact of upcoming vessel regulations have combined to create the perfect scrap storm. Since the start of the year a total of 8 mdwt of tankers have been scrapped, including 17 VLCCs, 3 Suezmaxes and 1 Aframaxes. The average age of scrapping has been years, though the total includes a significant number of vessels in the year category. This indicates that many Owners are deciding not to go through with the 17.5 year intermediate survey, particularly in the VLCC sector where earnings have been sub-opex for much of Quarterly Tanker Scrapping Source: Clarksons Tanker Scrapping vs. Deliveries Q1-18 Deliveries Scrapping VLCC Suezmax Aframax / LR Source: Clarksons If this pace of scrapping is maintained for the rest of the year, tanker fleet growth could be close to zero in 18 (or even negative for the first time since 1). Our view is that low earnings and high scrap prices will continue to spur scrapping throughout the year; however, it is perhaps too much to hope that the torrid pace seen in Q1 will be maintained. Scrap prices have started to ease back from the peak of $8 per ldt seen in March, and tanker earnings have firmed slightly in recent weeks (albeit to levels which barely cover OPEX). The recent increase in scrapping was anticipated, however the volume of vessels scrapped has exceeded all expectations. This elevated scrapping should be a positive for the tanker market as we move through 18, particularly during the second half of the year when we expect an improvement on the demand side due to a rebalancing of oil markets and an easing of OPEC supply cuts.