In a recent study, VesselsValue senior analyst Court Smith assessed the deviation from the long-term median versus current values (see chart above) in the tanker market.
“The current market value of 5-year assets should have buyers looking to the smaller side of the spectrum again. Aframaxes, LR1s, and MR2s appear to be the best candidates for further study as an asset play,” suggested Court Smith.
He noted that asset prices for tankers have been rising but have not seen the acceleration in asset price appreciation of their dry bulk counterparts and a renewed sense of optimism has hit the tanker market as spot market volatility returned in Q4.
The indication is that rising replacement costs for ships is also putting upwards pressure on asset prices as shipyards have been unwilling to continue offering loss leading prices to secure business.
His paper noted that crude tankers have seen asset price appreciation over the past year as buyers sensed the opportunity coming as older units were sent for recycling at the start of 2018.
Clean tanker asset values are lagging due to overcapacity and limited trade growth opportunities, but this may change as we approach new trade flow patterns ahead of the IMO 2020 global sulphur bunker cap implementation.
Seaways Raffles case study: timing made sense but failed to deliver expected appreciation (Source: VesselsValue)
But he warned that despite these indications, values in the key VLCC sector have failed to appreciate as expected.
This was illustrated by the case of Seaways Raffles.
Mr Smith noted that the sale of Seaways Raffles was concluded following the sharp decline in asset prices in 2008-2010. The timing of this purchase seemed to make sense as the market was on an upswing, however, the run up in prices failed to continue.
A slew of newbuild vessels were delivered into a weak market, removing the upside. International Seaways acquired Seaways Raffles at what appears to be a clearer point in the downcycle in late 2017.
But the purchase may yet prove to be a bargain: “The significant removal of older ships from the fleet in 2018 has mitigated some of the oversupply in the VLCC market, and the surge in winter rates is making this purchase look more prescient. Whether or not Seaways Raffles becomes a good case study in asset plays will depend on how the tanker market plays out in 2019, but the buyers are certainly enjoying more robust earnings in Q4 2018.”