Archives for posts with tag: crude tankers

The Wall Street Crash in 1929 marked the onset of the Great Depression in the US. Times were tough, but jazz music, which had taken off in the 1920s, endured and evolved into the era of big bands and swing music now synonymous with the 1930s. The crude tanker sector is having a tricky time of its own at present, but over the last decade, crude trade patterns have seen their own evolutionary swing…

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As snooker players know, it’s hard to keep a good break going. In today’s conditions, the shipping industry needs supply-side re-positioning to help the markets back to improved health, and increased recycling in recent years has been a clear part of this. However, there’s still some way to go to better times, so it’s worth taking a look at how today’s ‘big break’ might leave the future potential scrapping profile.

The Big Break!

Since the start of 2009, a total of 206.6m GT of shipping capacity has been sold for recycling, compared to an aggregate of 63.1m GT in the previous seven years. This total includes 94.7m GT of bulkcarrier tonnage and 29.1m GT of containerships, helping to address oversupply in the volume shipping markets. But given such a prolific run of demolition activity, what does the future potential scrapping profile look like? Well, there are many measures that can be used to investigate this, including the metric featured in the graph. If the average age of scrapping is taken as a useful indicator of the current state of conditions facing owners in each market, then calculating the amount of tonnage remaining in the fleet at today’s average age of scrapping or higher might tell us something interesting, especially if ongoing market conditions persist.

What’s Left On The Table?

In the tanker sector, which up until fairly recently was backed by stronger market conditions, the average age of scrapping in the year to date remains relatively high, at 25 years for crude tankers and 27 for product tankers (bear in mind that not many tankers have been sold for scrap recently, and the average age may fall). Given that a lot of older single hulled tanker tonnage was phased out in the 2000s, the amount of tonnage above the average age today is limited. In the bulker and containership sectors, both under severe market pressure for some time now, the statistics are a little more revealing. Despite heavy recycling in recent times, the share of tonnage above the current average age of scrapping is 8% for Capesizes and 6% for Panamaxes. For boxships sub-3,000 TEU the figure is 10% and for those 3-6,000 TEU 12%. Of course if the average age of scrapping falls, then the picture changes again. In the 3-6,000 TEU boxship sector, the youngest ship sold for scrap this year was just 10 years old; around 50% of tonnage today is that age or older.

Cue More Demo?

What does this tell us overall? Well, using the sector breakdown shown in the graph, the statistics tell us that around 75m GT in the fleet is above the current average age of scrapping, 6% of the world fleet. At 2016’s rate of demolition, that’s another 2.4 years’ worth. And given the age profile of the world fleet, after another 2 years an additional 21m GT will have crossed the current average age mark and after 5 years another 77m GT.

Break Not Over?

So, what chance does the industry have of keeping the demolition pressure on? Well, obviously freight and scrap market conditions and regulatory influences will have a big say. However, it looks like, in today’s terms at least, the industry might be in a good position to keep the break going. Have a nice day.

SIW1242 Graph of the Week

For many of the markets covered by Shipping Intelligence Weekly, the first part of 2015 was relatively kind. Rates for crude and product tankers were riding high, boxship charter rates picked up for the first time in years and VLGC rates have hit levels above 2014 averages. Even Capesizes have recently shown signs of life. But spare a thought for the offshore sector, the hardest hit by the oil price decline.

Price Drop

Back in the downturn of 2008/09, most commodity and shipping markets felt the negative impact and the offshore markets were no exception, with dayrates dropping by an average of around 35% (see graph).  Moving forward to the current time, however, the 50% decline in oil prices since mid-2014 has brought some relief for merchant vessels, in the form of cheaper bunkers, and stimulated oil demand, helping trade. But cheaper oil has meanwhile put heavy pressure on the offshore sector, where field operators already faced cashflow problems as field developments ran late and over-budget. The response has been sharp cuts in exploration and production (E&P) budgets. It is estimated that spending on offshore E&P will fall by 19% this year.

Investment Cuts

This means investment decisions on new projects have been deferred, whilst expenditure to enhance recovery from existing fields has also slipped. Accordingly, drilling demand has fallen, just as deliveries of new jack-up and floating drilling rigs have accelerated. Rates for ultra-deepwater floaters are now almost 50% below their late 2013 peak, at around $300,000/day. This reflects the reduced demand in frontier areas for exploration and appraisal drilling, not helped by the corruption investigations in Brazil. Meanwhile, jack-up drilling rig rates have been equally hard hit, with shale gas production killing demand in one of their traditional major markets, the shallow water Gulf of Mexico. Utilisation of jack-ups is below 80%, and rates have fallen more than 35% to around $100,000/day.

Less Support For Vessels

This has had rapid knock-on consequences. The 5,365 vessels and 1,133 owners in the OSV market are also exposed to the downturn in exploration drilling and operational field maintenance. Fewer active rigs harms the AHTS market for rig towage and positioning, whilst PSVs rely on the growth in active offshore installations (drilling rigs, plus mobile and fixed production platforms) to add to demand. Rates for OSVs are down in all regions, by over 35% on average in terms of the index on the graph. PSVs have a further problem of a robust supply growth to contend with (and close to 40% of the fleet on order for the largest units over 4,000 dwt).

Of course, markets are cyclical, and the offshore sector had its moment in the sun during 2012/13, at a time when several of the merchant shipping markets were in the doldrums. Although the current oversupply in world oil markets of around 1.5m bpd is a clear short-term hurdle, projected demand trends suggest that higher oil prices remain a likely prospect in the long-term, and the improvement in other sectors suggests that there will eventually be light at the end of the tunnel for offshore too. It’s just that it could be a little way off yet. Have a nice day.
SIW1185

Well, summer’s here and shipping investors are heading for the sun and a bit of relaxation. It’s halfway through the year, so it’s also a chance to reflect on the last six months, and maybe speculate a little about the next. But to enjoy this diverting task, you need the right sort of drink and we think Greta Gronholm’s cocktail My Green Summer (MGS), voted IBA cocktail of the year in 2013, might be just the thing.

Shaken And Stirred

The shipping cocktail in the chart has three ingredients – a bland but pleasantly oily world economy, fruity freight rates, with an intrusive hint of bad bulker, and cool prices. Give it a good shake and you can drink it but you’d be much better off sticking to Greta’s award winning brew.

Economy – Bland With Attitude

My Green Summer is based on the economical Martini Prosecco, a suitably affordable fizz to toast OECD industry whose growth rate halved to less than 2% pa in the first half of 2015. China is a worry, with imports down 7%, as the steel industry finally peaked out, and there are concerns about its $28 trillion debt problem, a real estate bubble and the stock market. But My Green Summer spices things up with a dollop of exclusive Grey Goose La Poire vodka. Luckily oil prices, down 46% since last year, are doing the same thing for the economic cocktail. Cheap oil is sweetening up world oil demand, and the IEA in June revised its demand forecast up to 1.4 million bpd growth in 2015, a helpful 1.5% increase.

Revenue Tasty By Tart

On the earnings front, the last six months was surprisingly flavoursome. My Green Summer adds Routin 1883 Green Apple, Routin 1883 Passionfruit, and a touch of Call Premium Lime juice. You can taste all these fruity flavours in the market, with oil tanker earnings up 110%, gas carriers up 26%, and (a bit sharper) containerships up 36%. With most segments doing better in the first half-year, the Clarksea Index was up by 29%. But whoever mixed the cocktail wasn’t paying attention. Although tanker rates were historically strong, boxships are still struggling to cover depreciation and the miserable dry bulk performance, with average earnings of only $6,500/day is leaving drinkers with an very unpleasant aftertaste.

Asset Prices Cucumber Cool

The final ingredient of My Green Summer is a slug of Le Sirop de Monin Cucumber, which pretty well describes asset prices – cool. Bulker prices dropped 34% as investors, after the euphoria of 18 months ago, cooled to the prospect of an imminent market recovery, concluding there’s too much capacity everywhere. Meanwhile, secondhand prices for crude tankers have risen year-on-year bur product tanker prices have fallen away on the same basis. Meanwhile the shipyards are discounting prices, especially for the bigger ships.

Not Really An Award Winner?

So there you have it. A fizzy world economy, shaken up with a dash of cheap oil; some fruity tanker earnings, a large slug of bulker bitters all shaken with a measure of Le Sirop de Sluggish Sentiment. It’s not really a classic cocktail is it? Have a nice day.

SIW1180