As evidenced by plenty of recent deals done by ship owners around the world, including many Hellenic owners, tanker values have retreated to such levels, that are pretty much irresistable, despite the short-term challenges that the tanker market is faced with.
In a recent report, CR Weber said that a VLCC was recently reportedly sold for $29.4 million. It was the VLCC Saga Unity (298,920 DWT, Built 2000) and the quoted price represented a fall of 53% from the same unit’s previous sale price of $62 million some 18 months ago. According to the shipbroker, this sale illustrates the kind of pressure tanker values have come under since earnings trailed off from the rally of the first half of 2010.
“The fresh low has stirred fresh fear among market participants that further corrections may be forthcoming – particularly given the spectre of bankruptcies. These fears are certainly not unfounded. However, there are reasons to believe that tanker values may be at or near their trough – or at least close. Firstly, newbuilding prices are unlikely to descend below the $100m mark. Indeed, this week 3 VLCC orders were contracted at Hyundai for delivery in 2013 at a price of $100m each. Relative to pre‐financial crisis steel/newbuilding price correlations, a $100m order price actually represents an attractive discount.
Moreover, a number of offshore oil production projects – particularly in Brazil – are likely to boost demand over the next 18‐24 months for quality mid/late 1990s‐built VLCC tonnage for FPSO conversions which should limit value losses to levels which are above demolition values (recently about 18%). The sale price of the aforementioned VLCC unit was ~24% above its estimated current demolition value” said CR Weber.
In a separate market report, Fearnley’s said, commenting on market activity, that “a continuing demand for VLCC coverage combined with what can only be described as a strong effort on the part of shipowners to push rates higher has now resulted in higher rates being seen in the VLCC market this week. An important negative side for owners, however, is that rising fuel prices took a sizeable piece of the increased earnings these higher rates should have provided, and de facto net earnings for owners on most main industry VLCC routes are still far below what owners need to break even. It appears that most MEG stems for the first ten days of November are now covered, and charterers are presently holding back in hopes of trying to cool owners´ passions for ever higher rates. The next few fixtures will indicate whether charterers or owners will win out in this perpetual struggle, but certainly the
size of the position list seems to favour the charterers. The week got off to a firm start for Suezmaxes both in WAF and in the Med/Bsea, but due to a more than ample supply of tonnage in WAF for the first ten days of November, charterers were able to assert considerable downward pressure on rates in this area. We also expect Bsea rates to slide even though we still envision further delays in the Turkish straits. In the Aframax sector we saw
rates decline for Nsea liftings as a result of little early November activity and a growing position list. The same was true for Aframaxes trading in the Med/Bsea were tonnage started to build up as a result of less cargo availability. In the Caribs upcoast voyages are being fixed at the ws110, which is well down from last week´s levels” said Fearnley’s.
Meanwhile, referring on other tanker segments, CR Weber had provided some insight on the recent concerns raised by the Turkish authorities, regarding the transition of hazardous cargoes through the Bosphorus Straits. In fact, last month, the Turkish authorities shut down the straits for a few hours to allow authorities to simulate a tanker crashing into a passenger ferry in order to conduct response exercises. More recently, it was announced that hazard restrictions – which already limit tanker transits to daylight hours – would be extended to containerships.
“With tanker delays already as high as 6 days this week, the news saw charterers rush to fix cargoes and prompted significant gains to both Suezmax and Aframax rates in the Black Sea-Mediterranean market, with voyage earnings on these classes rising to $32,000/day and
$43,000/day, respectively. Such earnings should not be expected to become a new norm, but if persistently longer delays do become the result of the containership restrictions, even after a rebalancing of tonnage from other geographic markets materialises it would be reasonable to expect that earnings will see some, albeit minor, improvements above what would otherwise be expected on the back of normal seasonal factors.
VLCCs could find extra duty on the trans-Atlantic run from West Africa, freeing up more Suezmax tonnage to service the Black Sea market. This would moderate Suezmax rates but also help in bringing the Middle East market closer to equilibrium. Similarly, many of the spare Aframax units which flooded alternate markets after the cessation of Libya’s oil supply are likely to ballast towards the Black Sea/Mediterranean market where earnings are now stronger. This will obviously cause a correction of rates there, while allowing a rise from the dismal earnings the alternate markets have seen in recent weeks. Even with such rebalancing, there is still the likelihood that weather issues at the Turkish straits will compound any delays emanating from the new restrictions, creating greater volatility and stronger rallies during their isolated occurrences” concluded CR Weber.