Owners of Suezmax tankers are worse off than their counterparts with focus on other ship classes, said shipbroker Charles R. Weber in its latest weekly report. The shipbroker said that the Suezmax market will face a prolonged course towards recovery, as a result of a lack of enough phase-outs, compared to other tanker classes. According to the report, “a broad decline in Suezmax rates since the start of the year has seen average pushed earnings to sustained lows with average returns hovering under $3,000 /day throughout this past week. Representing merely third of average daily OPEX, average earnings stand 35% below the low observed during 2017 – at a time when the market is still at seasonal strength”.

CR Weber said that “while hosts of factors have influenced trade dynamics to the detriment of demand distributed to the Suezmax class, the drivers of the extreme scope of the earnings downturn are far from complex: global fleet supply has expanded by 17% since 2015 while demand has decline by 8%. Indeed, in order to achieve earnings equivalent to the ~$42,280/day observed during 2015, we estimate that the fleet would need shed 111 units. Instead, we project that the 2018 orderbook will produce 33 deliveries by the close of the year. Net of a projected 21 phase‐outs, the fleet is likely to expand by 2.4%. During 2019, a further 24 newbuilding deliveries and 15 phase‐outs are projected, for a net growth of a further 1.7%”.

The shipbroker added that “Suezmax demand is not isolated and the class’ ability to compete in VLCC and Aframax markets implies that any advance improvements elsewhere in the crude tanker market will be supportive, to varying degrees, of Suezmaxes.  Inversely, challenges in those markets have applied strong negative pressure on Suezmaxes in recent quarters – something evidenced by the fact that Suezmaxes presently earn considerably less than Aframaxes on a TCE basis but are more expensive for charterers on a $/mt basis for comparable voyages.   At the time of the last downturn, at their lowest Suezmax earnings were earning 56% of Aframaxes were – and indeed today, the larger class is earnings 59% of the smaller.   Typically, Suezmaxes out earn Aframaxes by 132%”.

Accordin to CR Weber, “encouragingly, the pace of demolition sales in the crude tanker market surged during 2017 amid 38% rise in $/ldt values.   Twelve Suezmaxes were ultimately retired through such sales, partly offsetting the 51 newbuilding units delivered; between 2014 and 2016, just 10 units were retired.  Expanding the pace during 2018 could help to lift the floor during the ongoing trough market.    It would be unreasonable to expect 111 units to be quickly phased‐out in the coming months – indeed, achieving that number would require nearly every unit under 16 years of age to be demolished, something unlikely given recent major maintenance undertaken on a large portion thereof.    Simultaneously, it would not be unreasonable to expect at least some pickup. Our base‐case phase‐out assumption, which is based on a granular analysis of the likely phase‐out time for each consistent of the fleet given a range on information pertaining to attributes like ownership, construction and deployment, is for 22 phase outs during 2018”.

“In a high scrapping scenario, we would assume that the commercial disadvantages of older tonnage and the prolonged earnings lull would change the mentality of owners around scrapping sufficiently that most units under 18 years of age would be phased‐out in during the year, totaling 38 units. Assuming that similar scrapping acceleration is observed throughout the crude tanker space, the impact would certainly be meaningful: we estimate that the difference between 22 and 38 phase‐outs during 2018 for earnings could be as much as $13,000/day”, CR Weber concluded.