Euronav confounded by lack of recycling
Belgian tanker major Euronav is bewildered by the lack of ship recycling in the tanker market given the prevailing headwinds and low freight rates.
Historical trends show that low tanker rates induced owners to send their older tonnage to the scrapyard. Over the last 30 years, on average 5% of the VLCC fleet exited the global fleet following a 12-month period of low freight rates (below $ 25,000 per day).
However, this has not been the case in the current low market cycle.
“Many analysts believe that older tonnage has instead been used for “illicit trade” that has developed around Iranian and Venezuelan sanctioned cargoes. The vessels undertaking this trade have been almost exclusively older tonnage (DNB estimates the average age of 20 years for such VLCCs),” Euronav said.
Therefore, instead of enjoying a high current recycle price of $20 million for a VLCC, it appears that such vessels have instead been sold, usually to private operators. According to Gibson Shipbrokers, 83 elderly VLCCs were sold since 2019, with such trades facilitated by less efficient policing over the recent period.
The impact has been substantial with potentially 66 VLCCs (54 Iran, 12
Venezuela) and 29 Suezmaxes (20 Iran, 9 Venezuela) involved, Gibson said.
The effect has been to reduce recycling to 11 VLCCs (1.3% of fleet) and 5
On the contracting side, VLCCs have been a recent source of attention, with a quarter of the order book now dual fuel denominated.
To remind, Shell signed agreements to charter ten new crude tankers powered by dual-fuel liquefied natural gas (LNG) engines.
The vast majority of these vessels (80%) will not enter the spot market but will instead start with multi-year time charter.
The Suezmax sector has not seen the same level of contracting, with less than five new builds ordered per quarter over the past year.
Euronav believes that the increased focus on dual-fuel vessels and growing focus on cutting emissions will give the final push to the market to offload higher emission tonnage.
The shipowner has availed of the market opportunities to rejuvenate its own fleet with dual-fueled newbuilds.
In February, Euronav revealed it had signed a deal to acquire through a resale two eco-Suezmax newbuilding contracts for $113 million.
Currently completing construction at the Daehan Shipyard in South Korea, these vessels are due for delivery in January 2022.
The move was followed in April by a deal with Hyundai Samho yard for two VLCC newbuilding contracts. The vessels are set for delivery during Q4 2022 and Q1 2023, costing $186 million en-bloc. Euronav also has the option to contract a third VLCC with the same specifications for delivery in the second quarter of 2023.
All of these newbuilds have the LNG Ready structural notation and Euronav is working with the shipyard and classification society to have the Ammonia Ready structural notation as well.
For the first quarter of 2021, the company realized a net loss of $ 71 million against last year’s equivalent of a net profit of $225.6 million. Proportionate EBITDA for the same period was $33.1 million against $335.2 million in Q1, 2020.
”We remain confident that the market will recover in the medium-term and that is why we took advantage of available low asset prices to make counter-cyclical investments in both the VLCC and Suezmax segments during Q1. Alongside the excellent relationships that Euronav maintains with shipyards, our new eco-ships will form a key part of our energy transition strategy to lower our fleet emissions,”Hugo De Stoop, CEO of Euronav said.
The tanker major believes tapering of production cuts from OPEC+, now scheduled to deliver 2.1 million bpd of additional crude between May and July, should help improve the market.
Every 1 million bpd of crude transit should translate into a requirement for 30 VLCCs.
Finally, the return to the world economic order of legitimizing the “illicit” crude tanker trade with Iran could be the catalyst for older tonnage engaged in this trade to be recycled out of the global fleet.