In what could be a limelight for some ship owners, prospects and market fundamentals appear to be encouraging for the Medium-Range (MR) product tanker market. In its latest weekly report, Intermodal’s George Lazaridis discusses whether and how much of a real potential there is in this particular segment, as well as if MR tankers are best suited to take advantage of a shift in market conditions. For starters, “the considerable number of refineries under construction in locations such the Middle East Gulf (prime crude oil producers) has created a general sentiment that there will be a strong increase in tonne-mile demand for refined oil products, as it is presumed that much of the output produced by these new refineries will be heading to Europe, America and even as far as China and Japan. Such an increase in demand points to a possible shortage in available tonnage, as the current orderbook for product tankers is considerably low. In the MR tanker segment we have a fleet of 1,967 active vessels, while the orderbook represents only an 11% increase in the active fleet, amounting to 218 vessels currently scheduled for delivery up until 2016. This has led many in the market to believe that there is much potential to take advantage of in this market segment through the ordering of new vessels. This has been further enhanced by the supply of new fuel efficient designs by several shipyards in an effort to entice owners to order” said Lazaridis.
He added that “comparing to the larger LR1 and LR2 (coated Aframax) tankers you get an indication that there may be a misplaced hope in the smaller sizes. The fleet and orderbook of these larger product tankers are even more promising. The current active fleet of LR1 tankers stands at 431 vessels with only another 42 vessels currently on order (less than 10% orderbook to fleet ratio). At the same time as the voyage distance starts to increase, these larger sizes become better suited to take advantage of these routes due to the extra benefits offered by the economies of scale” he noted.
Concluding his argument, Intermodal’s analyst noted that “at the same time, if one takes into account the current state of the MR tanker freight market, it is debatable if all that is being heard by all these market pundits is truly a possibility one should take advantage of. It may be the case in the end, that the segment to most benefit from this market shift will be the very large product tankers such as LR1s and LR2s, leaving the MR tanker range oversupplied and with slacking demand” he mentioned.
Meanwhile, in the demoliton markets this week, according to Lion Shipbrokers, market rates in the subcontinent were stable. “This week, we notice two VLCCs heading for Pakistan beaches while subcontinent's prices are ranging between $370-$390 for bulkers, at $400-$420 for tankers and $380-$400 for container vessels. China is stable this week paying $330-$350 as well as Turkey paying $305-$315 for bulkers, $315-$320 containers & $310-$330 for tankers” it said. Shipbroker Golden Destiny also noted that “with the anticipation of the results for India’s scrapping future, the activity this week was by 163% higher than last week. In total the week ended with 21 vessels reported for demolition, while in terms of deadweight the figure this week is 105.7% more, at 1,440,159tons. Although all demolition countries were active, for 47.6% of the deals that were reported to be heading to the destinations remain undisclosed. At the similar week of last year in total 24vessels were sold for scrap of a total deadweight of 707,646 tons” it said.
Finally, Intermodal mentioned that “the demo market seemed to have felt a short lived improvement as conditions in the market began to deteriorate once again. Steel prices started to drop once again in the Indian Sub-Continent, while at the same time sentiment amongst demo buyers in both Bangladesh and China was considerably worse. Buyers are now holding off for more high spec units as they reach close to their current capcities, while at the same time there seems to be an unwillingness to speculate on any improvement being noted over the next couple of weeks. One of the main reasons seems to be the yet to be resolved potential closure of the Indian market while at the same time the is limited optimism for any firming in steel prices soon. Offered prices have therefore dropped slightly with prices for wet tonnages weakening to levels of around 350-405$/ldt and dry units softening to about 330-380$/ldt,” it concluded.