by Barry Luthwaite
analysis
A harsh winter and better market balance offer hope
of a predicted hard winter in Europe. The rise has delighted owners of ice class 1A tonnage who enjoyed good earnings last winter. Secondhand values continue to fall, and even at the current unprecedented low levels, modern double-hull tonnage struggles to find trading buyers or even interest. Crude is suffering most, though Suezmax
O
loadings in September saw the best rise in spot rates for some time. But this is still not saying much, as VLCC owners are facing the challenge of recovering operational costs, and many are returning to slow steaming. There has been a rise in enquiries about lay- up berths for VLCCs, especially off Labuan, Malaysia, but owners are wary. Cold lay up with attendant facilities is not a cheap option and the spot market is so volatile that it only takes an incident somewhere in the world to push up spot rates. Market recovery hinges on a better market
balance. There is still excess capacity. There are encouraging signs, but progress is slow. Demolition in 2011 is claiming the highest number of tankers in seven years, boosted by prices paid by India and occasionally Pakistan that are, on average, in excess of US$520 per ldt. Such rates exceed present further trading values for tonnage built in the mid-1990s, especially for crude carriers. Attempts to lift the ban on scrapping in
Bangladesh are still deadlocked. Hopes of a court resolution are rising, but the October 12 deadline has been extended. Owners will hope for Bangladesh to be reinstated, as facilities in the country will have to offer high
TANKER SALES FURTHER TRADING 2011 vessel type Aframax
Handymax Handysize
Medium Chemical Medium Products Panamax
Small Chemical Small Products Suezmax
VLCC total
www.tankershipping.com
no 38 45 18 20 11 11 50 7
11 29
240 dwt
3,959,378 2,103,631 564,803 328,104 163,707 784,757 310,131 39,425
1,641,882 8,497,998 18,393,816
wners in some sectors have been cheered by a rise in spot rates for forward winter fuel deliveries ahead
prices to compete with India. A typical VLCC built in the late 1980s now draws almost US$18 million from India and Pakistan. Early 1990s tonnage has attracted US$545 per ldt. This year will see at least 130 tankers sent for recycling. The 2011 total has risen from 97 to 127 units in the last two months, removing slightly under 9.66 million dwt from the global fleet. There are bargains to be had on modern
tonnage circulating for sale, and there are still cash-rich owners around. But potential buyers can afford to wait. A major surprise was 20 Japanese vessels being put on the market in September. Such numbers may be unwise at any one time but it underlines how desperate things are in Japan. Predators will hunt these out at the lowest prices they can obtain since they carry a quality trademark. Other Japanese owners are trading in purchase options on charters of original newbuildings. Italian and Danish owners in particular make healthy profits on products tonnage purchased. The purchase option prices were already built in and it is very rare that losses are ever made on these transactions when the charterer exercises the purchase option. Even at today’s depressed prices, such vessels are immediately resold, yielding between US$1 million and US$5 million profit for the original charterer/owner. Several Japanese owners are hovering on
the brink of bankruptcy. The latest casualty was Eagle Holdings: the Japanese owner has applied for court protection. Unfortunately for charterers, they will have no recourse against the court’s decisions in the rehabilitation phase. One of Eagle’s MR1 tankers was on charter to DSD, Norway, since delivery ex
TANKER SALES FOR DEMOLITION 2011 vessel type Aframax
Handymax Handysize
Medium Chemical Medium Products Panamax
Small Chemical Small Products Suezmax
VLCC total
no 24 19 21 7 4
14 15 4 6
13 127 dwt
2,303,562 891,685 648,432 106,425 73,160
1,020,601 96,288 29,088
924,801
3,565,522 9,659,564
shipyard. It has now been purchased by DSD for US$24 million. This is an astute move on the part of DSD to avoid a potential impasse now that the court is involved. Recent transactions starkly underline
the dilemma facing sellers. A broker’s valuation of two 2005-built LR1 products carriers at US$34-36 million generated no interest. Valuation has now been reduced to $30 million each in a desperate effort to sell. Each of the two vessels did have time charters secured at high rates during the boom, but these have since expired. Low benchmarks have also been set with VLCCs in further trading deals. They have attracted the interest of conservative Greek owners, with a 2000-built VLCC and 1995-built VLCC attracting valuations of US$36 million and US$25 million respectively. Unfortunately the current trend is set to
continue for some time yet. There is evidence of agreed secondhand deals failing but not on subjects. Potential bargain hunters are staying their hand as they know values will drop still further in the future. Auctions are increasing and the surprise is that so few owners have perished so far. Six vessels from the Cyprus- listed Ocean Tankers Holdings fleet will be auctioned by the end of November from a once 15-strong fleet. Buyers will be attracted by a mix of modern small and medium chemical and products tonnage, much of which was built new. Other companies are in trouble and the recent chapter XI protection offered to Omega Navigation is now likely to be extended to Genmar if market rumours are to be believed. Such omens do not bode well. TST
Sources for all figures: BRL Shipping Consultants. Data as at 1 October 2011
TANKER SALES FOR DEMOLITION 2011 country of demolition India
Bangladesh Pakistan China
Undisclosed Turkey USA
United Arab Emirates total
no 58 21 19 13 11 2 2 1
127 dwt
3,748,482 1,882,469 2,303,470 1,010,700 632,050 11,557 62,600 8,236
9,659,564 Tanker Shipping & Trade I October/November 2011 I 15
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