As the glut of oversupply in the tanker market is overwheling and threatening to cut down the potential earnings of newbuilding vessels, ship owners seem to have accepted the notion of selling younger vessels (but still old compared to their modern counterparts) for scrap. According to the latest weekly report from CR Weber, until recently, the average age of tanker units sold for demolition was relatively level, despite the fact the the average age of the world’s tanker fleet is being brought down, as a result of newbuilding deliveries.
According to the report, “until 2010, most tanker demolitions sales were limited to single hull vessels. During 2010, there was some acceleration in the number of double hull vessels (many of which had been converted from single hulls), but this was in tandem to an overall acceleration in demolition sales as demolition values were rebounding from 2009 lows.  Accordingly, the percentage of double hull units sold for demolition relative to the total remained low during 2010 at 13%. During 1H11 the percentage rose to 22% and since the start of August it has risen further to 39%. It is also worth noting that since the start of September, the average age of demolition units has dropped to about 23 years with 5 units built in the early 1990s being sold for demolition (4 of these being double hull units). Although it is too early to surmise that this represents an emerging trend, it remains one of the most viable means of aiding the tanker sector from overcapacity.
In the VLCC space, there are some 35 units (including 32 double hull and 3 single hull) aged over 15 years which have traded over the past two months. Among these, only the single hull units (along with not yet vetted new buildings) have been observed to trade at a relative discount to the market, which is why the progression in this space to demolitions has been slow. Thus owners continue to wait for conversion options which may offer a modest premium to demolition sales. However, in many of the other tanker sectors, the overall balance would be significantly improved by a progression to slightly younger, double hull units» noted CR Weber.
Meanwhile, in terms of market movement during the previous week, CR Weber said that “the VLCC market commenced with slight optimism after a number of fresh cargoes allowed for upward pressure in the Middle East which translated into a relative rally (relative being the key word) in Eastbound rates to ws46—a 2‐points gain from the close of last week. As the week progressed, however, activity subsided to a much slower pace. Ending owners’ lingering hopes that the market might hold on to the small gains, a fresh requirement by S‐Oil for an AG‐Korea run off normal dates was met with no less than ten offers—which immediately corrected rates. In the Atlantic, however, the stronger Suezmax sector prompted more sustained rate gains on the VLCCs, though these remained minor at best.
There are 20 fresh fixtures to report in the Middle East market. Of these 15 were for discharge in the East, 4 in the West and 1 with several options in both directions. India led the Eastbound discharge profile, accounting for 7 of these. Cargoes bound for China – which is normally the largest destination – saw a significant reduction in volume this week with just one reported. On the back of earlier strength, the Eastbound gained 1.5 points, w/w, to average ws45.17. With bunker prices softer, the rate gains saw TCEs in this direction nearly double from last week to an average of $6,200/day. Rates to the West were largely unchanged at ws34, with TCEs gaining $900/day to an average of ‐$4,700/day. Triangulated Westbound trade earnings gained $1,200/day, w/w, to an average of $11,200/day.
Two fresh September cargoes this week brought the monthly tally to 125 – a number which matches the June tally, which was then an 11‐year high – and is now likely complete. Some 20 October cargoes have been covered to‐date, leaving a further 40 likely remaining for loading through mid‐month. Against this, some 67 units are projected to be available through mid‐month. With the excess tonnage clearly favoring charterers, bunker prices will be the
greatest determining factor of rates during the upcoming week.
In the Atlantic, the rise of Suezmax rates into the ws80s this week brought greater interest in the VLCC as co‐load alternatives. Accordingly, the trans‐Atlantic VLCC assessment rose to the ws50 level whilst one West Africa‐ UK/Continent fixture was reported at ws52.5. For more date‐sensitive cargoes, VLCC rates will likely hold at present highs. However, with the Suezmaxes now at a standoff as charterers hold out for rates in the ws70s and further VLCC
ballasts projected to be available for dates closer to mid‐month, rates should ease at some point during the week ahead” concluded CR Weber.