The lack of new VLCC orders was one of the surprises of the summer, begging the question, have subdued market rates finally convinced owners to slowdown fleet growth?
So far in 2018 there has been a steady stream of VLCC newbuilding contracting to report. This has in part been driven by forecasts earlier in the year of a narrowing of the supply/demand balance in the third quarter, with Thanksgiving Day assigned as the tipping point. However, as the year progressed, the summer months saw a lull in VLCC contracting.
No VLCCs were contracted during July and August. The largest tanker contracted was a Suezmax, but this is something of a special case - being the AET shuttle tanker ordered from Samsung for a specific project - and will not impact the supply of spot trading vessels for many years, if at all.
The low level of tanker ordering was noted by Clarkson Research Services research analyst oil LPG and chemicals Alexa Parker, who wrote in the Oil & Tanker Trades Outlook “the oil tanker orderbook (10,000+ dwt) stood at 489 vessels of a combined 65.7m dwt, the lowest number of vessels on order since August 2013.”
Cyprus-based Greek owner and operator Enesel SA was active contracting newbuildings. The NS Lemos-controlled organisation sold two 2004-built Aframax tankers, Pantelis and Sparto, to fellow Greek owner Thenamaris for a reported US$11.5M each (an en bloc sale) and ordered two 114,000 dwt Aframax replacements from Daehan. These are expected to be fitted with scrubbers.
Three MR2 tankers were also reported as contracted during July and August. Sincere Navigation, which had once switched an order for two Capesize bulk carriers into a solo VLCC order, is listed as having placed an order at STX Offshore & Shipbuilding (STX), although there are now doubts this order is still live. STX is now controlled by Korea Development Bank (KDB), which found itself the major shareholder after underwriting the financing of the yard. It is reported that KDB is not approving refund guarantees.
The other two MR2s ordered during the summer are for the account of legendary US listed tanker company OSG (aka Overseas Shipholding Group) that has returned from Chapter 11 as an MR2 tanker operator. The two MR2 will be equipped with scrubbers, and OSG has been retrofitting De Nora ballast water management systems to its other tankers.
“A key factor in the sale for scrapping of any vessel is the investment required to pass the next Special Survey”
Sales for further trading
According to VesselsValues’ senior analyst Court Smith: “Large crude tanker prices have started to increase. The discount these ships saw over the past several years is starting to evaporate as the replacement cost for newbuilds is rising.”
Another indicator of rising values is that VesselsValue fixed age VLCC is starting to creep upward to the median value. One interpretation of this trend is that the bargain is being squeezed out of the second-hand VLCC market, and the ship might have sailed for those looking to flip VLCCs for a profit.
Court Smith (VesselsValue): “Large crude tanker prices have started to increase”
Nonetheless, there was plenty of activity as regards the sale of VLCCs for further trading. ADS Crude Carriers purchased three VLCCs with reported seller’s credit for its new venture, which involves retrofitting scrubbers with the aim of reaping potential rewards from the fuel differential. In that respect, Arendals Dampskibsselskab (ADS) is joining DHT and fellow VLCC operator Frontline in lining up scrubber technology for VLCCs. ADS’ newly purchased VLCC Front Page is reported to have been fixed for 120-days storage work off the coast of Nigeria.
In August Teekay Tankers sold six Aframax tankers, Blackcomb Spirit, Emerald Spirit, Garibaldi Spirit, Peak Spirit, Tarbet Spirit, and Whistler Spirit in a sale and leaseback deal to Maritime Asset Partners (MAP), which is registered in Luxembourg and operates out of London. Teekay reported that the move increased its liquidity position by approximately US$60M after the repayment of outstanding debt related to these vessels. MAP describes itself as a non-bank specialised finance platform, established in response to opportunities arising from the diminished supply of credit to owners and operators in the global maritime sector. The backers are believed to be shipping-based families in Norway, including Blystad and Lorentzen, with MAP fronted by ex-Deutsche Bank officers, including Nick Roos.
Reporting on the sale and purchase activity, Clarkson Research Services noted that “the recent uptick in product tanker sales continued in August, with 17 sales reported in the month. Overall, 121 product tankers have been reported sold in the first eight months of 2018, just 10 sales less than in the full year 2017 and already exceeding the total in 2016.”
One key component of this was the sales activity of Scorpio Tankers International, which is striving to increase its liquidity position with sale and leaseback deals. The latest such deal is the sell and leaseback of STI Benicia, STI Duchessa, STI Mayfair, STI Meraux, STI San Antonio, STI St Charles, STI Texas City and STI Yorkville. Scorpio Tankers stated its aim was to boost liquidity by US$42M in aggregate after the repayment of outstanding debt.
Scorpio Tankers will bareboat charter-in the vessels for seven years and holds purchase options beginning at the start of the third year of each agreement. There is also a purchase obligation for each vessel upon the expiration of each agreement. Scorpio Tankers has not released the name of the buyer, but since the commencement of 2018 it has sold 32 tankers, the majority to financial institutions and banks in the Far East, including the Bank of Communications China.
On the deliveries side, a further five VLCCs entered the fleet, including one VLCC for Enesel SA. Other notable arrivals included DHT Bronco and deliveries to Ocean Yield, an Oslo-listed entity backed by Kjell Ingel Rokke which received two Suezmax tanker newbuilding, Nordic Aquarius and Nordic Cygnus.
Removals from the tanker fleet included three sales for scrapping of three VLCCs. This included Kuwait Petroleum Corp (aka KOTC) selling the 20-year old Al Shegaya for US$420/ldt. This follows a sale earlier in the year by KOTC of the 20-year old Al Salheia for US$406/ldt. What is remarkable about these sales is that in the past, KOTC has sold elderly VLCCs for further trading to Greek buyers.
The reason for the change in policy is not clear, but a key factor in the sale for scrapping of any vessel is the investment required to pass the next Special Survey.
The scrap market is ready to take advantage, and cash buyer GMS reported that “Markets are precariously poised at present, with the depreciating Indian Rupee and volatile local steel plate prices bringing grave concern.”