A new wave of newbuilding tankers hitting the market over the course of the next few months is bound to exert pressure on tanker freight rates, unless demand improves significantly and scrappings rise as well. In its latest market outlook, tanker owner Frontline said that the market will only begin to show improvement in 2018 the earliest, when the pace of newbuilding deliveries slow and vessels are retired from the global fleet.
Frontline notes that “we expect vessel scrapping to begin to pick up as we progress through 2017, particularly in light of the implementation of the ballast water treatment convention later this year and given the amount of older vintage tonnage. Some vessels may also be dry docked ahead of the implementation date of the convention in order to defer the cost of compliance. This may have the effect of temporarily removing supply from the market. Following the implementation of OPEC and non-OPEC production caps, which have largely been complied with, we have seen trade routes evolve. In particular, there have been increased long-haul voyages from the Atlantic Basin to Asia driven in part by increasing U.S. production and a shift in U.S. exports towards long-haul voyages. Crude oil demand, particularly from China and India, continues to grow, and crude oil is being imported from nontraditional sources due to OPEC production cuts and the desire to diversify supply”, said the shipowner.
It added that “the effect on ton-mile demand is positive, and we expect this trend to continue. All factors considered, the Company maintains a cautious near-term view on the tanker market and believes the market will begin to balance as vessels are absorbed into the global fleet and older vessels retire from trading. In the meantime, the Company expects that periods of market weakness will inevitably create attractive opportunities to acquire assets at historically low prices. The Company believes it is in a unique position to further grow and modernize its operating fleet and continue to generate substantial returns to its shareholders in a strong tanker market and healthy returns in a more muted market. Frontline has a long track record of doing so, and it seeks to carry on that tradition as it increases its leadership role in the market”, the ship owner concluded.
Meanwhile, in a separate report, Clarkson Platou Securities reiterated its Buy Rating on Frontline’s stock, after the company reported its first quarter results earlier this week, despite the fact that they were weaker than expected. “Averages spot earnings for Frontline’s VLCCs were $34,700 per day in Q1 while Clarksons Platou’s estimate was $40,000, analyst Herman Hildan told Reuters. Hildan says Frontline’s VLCC earnings are also lower than competitors DHT and Euronav while dividend of 15 cent is higher than consensus of 13 cent per share. Hildan says has a buy recommendation on Frontline and is in general positive to the tanker market even if it looks somewhat weaker for the time being. Hildan says the VLCC fleet growth set to peak in Q2, and that seasonally Q3 is a difficult quarter in the tanker market”, it concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
