An increase in the volume of secondhand tanker sales indicates increased demand and looking at the value of sales gives a snapshot of pricing, but a more insightful measure is the relationship between 5-year-old tankers and the newbuilding price. For VLCCs this ratio is looking firmer so far in 2019
The 5-year-old tanker is in many ways the perfect vessel. It is old enough that all the engineering snags of a newbuilding have been sorted out, but not so old as to be of a higher consumption generation or too old for some charterers stricter age requirements. But the main advantage is that the vessel is available for work immediately. A ratio of 100% indicates that 5-year-old prices are level with newbuilding prices.
In time of extreme demand, the ratio has gone above 100%, but the VLCC 5-year-old versus newbuilding price ratio has been as low as 71% in 2018.
According to Clarkson Research Services (CRS) the ratio of 5-year-old versus newbuilding price ratio in the VLCC sector has risen to 79% so far in 2019, indicating that sentiment in secondhand VLCC tonnage is increasingly positive.
Where does this sentiment come from? CRS reports that growth in VLCC deadweight demand is expected to reach 4.5% year-on-year, driven by Atlantic and Brazilian long-haul supplies to China.
The trading VLCC fleet is expected to grow by 2.2% in 2020, slightly lower than originally forecast due to the increase in VLCCs out of the market due to retrofits.
At the same time, VesselsValue reports that the total number of tanker newbuilding orders is down 47% for H1 2019 compared to H1 2018.
VLCC orders are down 60% for 2019 year-to-date, compared to the same period in 2018, according to the shipping data provider.