Tanker scrapping increased in the first quarter of 2018, with the volume of vessels sold for demolition exceeding all expectations.
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”, Teekay said in its latest market update.
Since the start of the year, a total of 8 mdwt of tankers have been scrapped, including 17 VLCCs, 3 Suezmaxes and 14 Aframaxes, Clarksons data shows.
The last time 8 mdwt of tankers was scrapped in a single quarter was in 1982.
In Q1 2018, the average age of scrapping has been 20 years, though the total includes a significant number of vessels in the 17-18 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 2018, according to Teekay.
“If this pace of scrapping is maintained for the rest of the year, tanker fleet growth could be close to zero in 2018 (or even negative for the first time since 2001). 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,” Teekay said.
As explained, the recent scrapping trend is likely to be positive for the tanker market, particularly in the second half of the year when an improvement in demand is expected.