22/05/2017 by Alibra Shipping 0 Comments
VLCCs: Secondhand values set to hot up
In February this year, the VLCC orderbook reportedly fell to its lowest level since 12 months earlier, with around 89 VLCCs on order. This is equivalent to around 11% of the VLCC fleet currently on the water (around 725 vessels).
Firm orders for 22 VLCCs have been reported so far this year, plus a further seven optional vessels. As has been reported in the maritime press, nearly two-thirds of all the firm VLCC contracts came from Greek companies and almost all the newbuildings are to be built at Korean yards.
In addition, in early May Hyundai Merchant Marine reportedly signed a letter of intent with Daewoo for up to 10 VLCCs, but as yet it’s unclear when this order will be formalised.
Analysis by BIMCO this month noted that net fleet growth for large crude oil tankers has already increased by 2.4% in the year-to-date. According to Alibra’s own estimates, some 29 new VLCCs have hit the water so far this year, with two reported sold for demolition. A further 23 newbuildings are scheduled for delivery before the end of the year. In 2018, another 41 VLCCs will be delivered.
In the secondhand market, we have tracked 25 VLCCs changing hands so far this year, of which 11 were acquired en bloc by DHT Holdings from BW Maritime Almost one-third of vessels were resales or recent deliveries, but interestingly another one-third were aged 15 years or older. Buyers have tended to opt for tonnage built at quality yards.
We wrote a blog earlier this year, discussing how depressed newbuilding prices for VLCCs have been keeping a lid on secondhand values. Despite all the ordering and increased activity in the S&P market (which is by no means a feeding frenzy), newbuilding contract prices for 300,000-dwt vessels have fluctuated between $80m and almost $85m – nothing too exciting.
This has caused secondhand values to remain pretty flat. The Baltic Exchange has valued a five-year-old, 305,000-dwt VLCC at around $60m, give or take, since September 2016. Despite the increased interest in VLCCs seen in recent months, the valuation of the Baltic’s benchmark vessel only received a boost this week, when it was assessed at $60.984m. This estimate is an increase of just over $1.0m from a week earlier, which is huge compared to how flat the assessments have been since the autumn.
It wouldn’t surprise us if secondhand VLCC values continue to firm over the coming weeks. We would hope that interest remains in the S&P market and that not too many further newbuildings are ordered – net fleet growth remains at a relatively high level and market fundamentals don’t suggest there will be any sudden spikes in demand. We don’t expect to see many VLCCs sold for demolition either, which will compound the threat of vessel oversupply.