The year 2021 has
been tough on crude oil tanker freight rates across the board so far.
Consequently, the industry buzz has been all about large scale scrapping of
tankers, but so far, it has been all talk and very little walk, as the
second-hand market has proved a much-preferred alternative.
Only two shuttle tankers and two Aframax crude oil carriers confirmed
demolitions are up from the start of last year, only two shuttle tankers and
two Aframax crude oil carriers (0.45m DWT) have been confirmed demolished in
the first two months of 2021, according to data from Clarksons. This is significantly
down from the 1.1m DWT of crude oil tanker capacity that left the market in
widely disappointing crude oil tanker freight rates at the start of 2021,
owners appear to be in no hurry to reduce the cargo carrying capacity in the
market by selling ships for demolition."
attractiveness of scrap steel prices around USD 450 per LTD. offered by breaker
yard on the Indian sub-continent, easily vanish when compared to USD 24.5
million being paid for a 2002-built VLCC in the second-hand market,” says
BIMCO’s Chief Shipping Analyst, Peter Sand.
Why is excess capacity not instantly removed?
volumes rise when freight rates fall, but it is not always that simple.
Earnings must remain in the doldrums for an extended period before demolition
activity picks up significantly,” says Sand.
For instance, in
Q4 2014 through Q1 2016, tanker freight rates enjoyed high levels on the back
of a sharp decline in oil prices during Q4 2014 to Q1 2015, but when tanker
freight rates started to drop after Q1 2016, it took around five quarters for
scrapping activity to pick up in July 2017.
Same-same but different
Every crisis holds
elements of something that we have seen before, in addition to elements that
are new to us. The most striking recognisable element of the current crisis is
that a lot of money was made before it all went sour, while the most striking
new element seems to be the fact that demand is very different.
observe two opposing future trends, both of which will steadily impact tanker
trade lanes. Where non-OECD nations (mainly India, China and South East Asia)
are rapidly heading towards a pre-pandemic level of oil demand, OECD nations on
the other hand are on a very different track as the US is now joining Europe
and Japan on a trend of a decline in the demand for oil.
Entering the seasonal lows for the year
2021 may not be about
seasons at all; leaving the winter peak season behind us now, we can only look
back at it as a non-event. The Asian refinery maintenance season is currently
under way, but it will most likely become another regular element which will
only be noticed to a small extent this year.