Prompted by difficulties in accessing new finance, shipyards are likely to reduce further the newbuilding prices in the tanker sector in the face of stiff competition between yards for new orders.
The move is seen as the probable course of action aimed at inciting new investments especially on the back of low order intake that plagues the shipbuilding industry, pushing industry giants such as STX Shipbuilding into court receivership. The South Korean Big Three shipbuilders have not been spared either since they have been pursuing ambitious restructuring plans eyeing asset sales and major layoffs.
“Downward pressure on asset values could stimulate new investment, with newbuilding prices slipping in May to its lowest level since 2013. This particularly could be the case, taking into account challenges faced by the shipbuilding industry,” Gibson Shipbrokers said in a tanker market report.
“Apart from limited access to new finance, shipyards are dealing with a number of other adverse conditions, most notably low order intake and shipowners delaying placing orders. This turmoil could force yards to compete even harder and reduce newbuilding prices even lower. Some owners may use it as an opportunity to augment their fleets and/or replace aging tonnage.”
Since January, 102 tankers over 25,000 dwt have started trading but there are still so many more to be delivered over the next two years. As of now, the tanker orderbook stands at 14% of the existing fleet, although percentages vary depending on the sector.
Suezmaxes have the largest orderbook of all, at 22% relative to its current fleet. In contrast, Handy/MRs have the smallest orderbook, at just 10%.
“Not surprisingly, there has been just a handful of confirmed tanker orders so far in 2016. Just 20 orders have been placed, with nearly half in the MR segment,” the report reads.
According to Gibson, the crisis in shipbuilding industry is expected to translate in to delays for tonnage ordered at troubled yards. However, the chances of cancellations are considerably less likely, particularly for tankers where construction is already under way.
Furthermore, in South Korea, where the bulk of the tanker orderbook is contracted, large shipyards provide a vital contribution to the domestic economy; as such, further government intervention and support is likely.
“To conclude, the number of tanker deliveries expected to commence trading over the next 18 months could be lower than previously envisaged. The recent lull in new tanker investment will also apply the brakes on the pace of expansion in supply in two/three years down the line. All of this offers welcome news for owners, providing that cautious approach to new investment continues,” the report further reads.