By 2020, some 100 very large crude carriers (VLCCs) will be over 20 years old, hinting that the time may be ripe now to replace that tonnage especially since the newbuilding prices are hard to resist now.
“With 80 million US dollars for a VLCC and 53 million US-dollars for a Suezmax, you need to travel some 25 years back in time to see similar prices (including inflation in the equation). One simply does not say no to such bargains; a theory well supported by the current level of contracting,” Jakub Walenkiewicz, Principal Market Analyst at DNV GL, said.
The low prices have spurred the owners’ appetite for cheap assets resulting in 20 VLCC orders during the first four months this year, IHS Markit data shows.
What is more, 52 VLCCs and 65 Suezmaxes are expected to hit the water in 2017, allowing the fleet to grow by six per cent and eight per cent respectively, Walenkiewicz adds.
The ordering spree comes on the heels of low earnings in the sector and weakening demand, fuelling further the already oversupplied market.
With the arrival of new additions, it is assumed that the older tonnage will finally head for dismantling providing the necessary ease to the market, even earlier than expected.
A total of 1.3 million dwt of crude oil tanker capacity was sent to the scrapyards during the first four months of 2017, heading to the expected demolished capacity of 9 million for the full year, according to BIMCO.
The year so far has seen eight crude oil tankers form for demolition, including two VLCCs, two Suezmax, three Aframax and one Panamax ships, which is a good sign according to BIMCO, as only nine were sold for the entire 2016.
But, there is “still a long way to go” as net fleet growth for the large crude oil tankers is already up by 2.4% year-to-date, and it is forecast to grow by 3.7% for the full year, BIMCO’s Chief Analyst Peter Sand claims.
Therefore, the assumption that the 20-year-old tankers might be sent for scrap may be less likely as owners have proven their insistence on utilizing their ships to the fullest regardless of age, scrapping being their last option.
It remains to be seen whether the threat of prolonged depressed earnings would be the incentive the owners need to come to grips with the surplus of tonnage.