2016-2020 Outlook: Aframaxes to Outperform Larger Crude Tankers

Limited supply growth in the Aframax sector of only 3.5% through the end of 2020 in addition to paradigm shifts in demand such as US exports and expanded Panama Canal opening will enable this sector to outperform the larger crude tankers, according to the latest report from McQuilling Services.

“Aframax earnings are likely to outperform and may benefit from additional triangulation opportunities in the Atlantic Basin. Additional Caribbean exports to the US and Europe are likely to result in increased demand for tonnage and with a measured supply outlook; we anticipate owners will earn USD 28,396/day on average through 2020 for Aframax trades,” the market outlook report for the 2016-2020 period reads.

For the clean sector, McQuilling expects demand growth of 4.5% in 2016, slightly less than average inventory growth of 4.6%, providing minimal pressure on rates for the larger clean tankers which are expected to increase market share of transported clean petroleum products.

Clean tanker earnings on the TC1 and TC5 routes are projected to be USD 30,462/day and USD 23,750/day in 2016.

By 2020, McQuilling expects values for 10-year old crude tankers to be approximately 35% higher than their 2015 average prices

“A continuation in MR2 fleet inventory growth, coupled with gradually slowing demand growth, will place moderate pressure on freight rates in 2016, before the balance tightens, enabling rates to flatten out and eventually turn north in the outer years of the forecast. On a triangulated basis (TC2/TC14), owners are likely to see returns of USD 16,498/day over the forecast period,” the report adds.

According to the company’s projections, in 2016 VLCC, Suezmaxes and Aframaxes are to rise by an average of 21%. LR2s are projected to average USD 37.5 million, their highest level since 2008. LR1s and MR2s are projected to reach USD 27.5 million and USD 20.0 million in 2016, 21% and 9% increases from January 2016 levels.

“Investors looking to enter the tanker markets will likely be rewarded by investing in the 10-year old segment of the market. We estimate that a 10-year old VLCC would return investors an annualized 17% unlevered IRR if acquired at January 2016 levels and held to maturity. On the clean side, the LR1 is projected to offer investors the best returns at just over 17% on an unlevered basis. Suezmax and Aframax 10-year old vessels would return 13% and 14%, respectively,” the report concludes.

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