New tanker orders have seen a sharp fall, but this slowing trend needs to be sustained for the longer-term health of the market, according to the latest edition of ‘Tanker Forecaster’, published by shipping consultancy Drewry.
After numerous orders in recent years, newbuilding activity in the tanker market declined sharply in the first quarter of 2016, as only 34 vessels (2.6 mill dwt) were ordered during the period.
Challenging conditions in capital markets and tight credit availability from banks have subdued new ordering. Although this will not arrest the strong fleet growth and corresponding decline in freight rates over the next two years, as many vessels are scheduled to be delivered in 2016-17, it bodes well for the future, especially if this is a reflection of cautious ordering by owners.
However, if the current decline is just a breather after the spate of orders seen in 2015, when owners increased contracting to avoid stringent Tier III regulations for the vessels ordered from 1st January, 2016, any increase in ordering in the coming months will hurt the longer-term outlook for the tanker market.
Despite the slowdown in ordering in the first quarter of the year, the total orderbook remains high at 63.7 mill dwt, 18.6% of the crude tanker fleet. About 80% of the vessels in the orderbook are scheduled to be delivered in the next two years, and Drewry expected more than 200 crude tankers to be delivered by the end of 2017.
“Newbulding prices declined during the quarter on account of the slowdown in tanker ordering, which coincided with weakness in newbuilding activity in other sectors as well, keeping prices under pressure. If ordering remains weak in the coming quarters, newbuilding prices could soften further,” said Rajesh Verma, Drewry’s lead analyst for tanker shipping.
“The tanker market is expected to be oversupplied in the next two years, due to hefty deliveries and relatively slow growth in the crude oil trade. If the slowdown in ordering continues further, it will keep fleet growth in check in the later years, which in turn will support tonnage utilisation in the tanker market,”he added.
Turning to the chemical tanker sector, rates are expected to remain firm over the medium term, thanks to rising production capacity in key exporting countries, according to Drewry’s ‘Chemical Forecaster’.
Since 2015, the US has started to export more and import less liquid chemical products. US methanol capacity surged 77% in 2015 with the addition of around 3.5 mill tonnes per year of new capacity. As a result, US methanol exports are starting to change the pattern of the long-haul chemical shipping trade.
US exports volume to Northeast Asian and Europe rose 12% and 20%, respectively, last year. As a result, Drewry said that eastbound transatlantic freight rates in particular will rise over the medium term.
Since sanctions on Iran have been lifted, many new projects in the Middle East are expected to come on stream from this year. For instance, the country’s 2.3 mill tonnes per year Kaveh Methanol plant is scheduled to start operations in the second half of 2016.
Exports from the region to Northwest Asia and Europe rose 5% and 23%, respectively, in 2015 and Drewry forecast the pace of growth to continue over the next three years, boosting freight rates.
However, on the westbound transpacific route, many large vessels have joined the trade. For instance, in the second half of 2015, 38 more vessels plied this route, of which 15 were of in 30,000-40,000 dwt bracket.
“We expect more large vessels to join the eastbound transpacific trade during 2016 and as a result we expect freight rates to weaken in the short term but to remain stable over the medium term,”said Hu Qing, Drewry’s lead analyst for Chemical Shipping.