Tanker Scrapping Key for Sustainable Market Recovery

September 7, 2018

Tanker owners are set to see an increase in freight rates in the second half of 2018, a welcome rebound from the historic lows over the recent months.

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Seasonal demand should support the market in Q3 and, especially, in Q4, according to BIMCO. However, a long-term recovery is highly dependent on removal of outdated capacity from the fleet through demolition.

“For crude oil tankers to really enjoy solid earnings, however, patience is required, as overcapacity is currently significant. The fundamental balance could worsen in 2019 if demand growth does not pick up, as the fleet could grow by 2.5% unless extensive demolition activity continues,” BIMCO’s Chief Shipping Analyst Peter Sand said.

Unfortunately, despite high demolition prices owners have not been that eager to part from their older ships as they still believe market will turn for the better in the second half of the year.

During the first half of the year, 13.1 m dwt of crude oil tanker capacity has been demolished, a level equal to the total for the preceding 40 months, BIMCO’s data shows.

But, there has been a reversal in demolition trend in the second half of the year with only one VLCC broken up in July, and little more that 1 million dwt demolished in total.

“BIMCO expects that there will be a cooling in demolition activity in the final six months of 2018, as the market is likely to deliver somewhat higher freight rates on the back of increased demand in the second half of the year,” Sand said, saying the expected demolition for crude oil tankers is 19 million dwt and 2.5 million dwt for oil product tankers.

Fleet growth year to date has been muted by the massive demolition activity. The crude oil tanker fleet was 0.2% smaller by early August than it was at the start of the year. The oil product tanker fleet has grown 1.7% in the first seven months of 2018.

“Our fleet growth forecast for the full year of 2018 is at 0.8% for the crude oil sector and 2.4% for the oil products sector,” Sand concluded.