Tanker Operator: Markets- Tanker Prices Ups and Downs

20 Jul 2015: “Tanker newbuilding prices have fallen since the end of 2014. However, secondhand prices of vessels for imminent delivery have risen over the same period. “This is a sign of the premium owners are willing to pay to acquire modern tankers in the current firm market conditions, a recent report from Poten & Partners said. “According to the latest price estimates, a VLCC newbuilding contract can be signed for about $95.5 mill, down $2 mill from the end of 2014, while prices for five year old VLCCs are currently assessed at $80 mill, $5 mill higher than in December 2014. “Poten said that developments for Suezmaxes were even more extreme with newbuilding contract price assessments $2 mill lower than levels seen at the end of 2014, while five year old values increased by $6 mill over the same period. “Similar price changes have also occurred in the clean tanker segments. For example, MR newbuilding contract prices declined by $0.5 mill, while five year old MRs increased by $3 mill since the end of 2014. “Illustrating the strength of the market, according to Poten,the average TCE rates on the VLCC benchmark route from the AG to the Far East were $62,400 per day in 2015 year-to-date, versus $28,400 per day over the same period in 2014. “Rates in other tanker segments across various routes also showed that the year-to-date average rates were twice as high as they were in the first half of 2014. “It was thought somewhat surprising that secondhand prices have not been stronger in recent months. This could be a sign of the uncertainty surrounding the longer-term impact of the decline in oil prices over the last 12 months. “Poten explained that during the tanker market peak in 2007-2008, owners paid a premium over newbuilding contracts for resale vessels, significantly beyond interest accrued during construction and the value of initial stores and spares. During the boom period, even five year old vessel values sometimes exceeded newbuilding contract values. Prices were supported by the availability of profitable long-term contracts, which are much harder to find in the current market. “Newbuilding prices are driven by a combination of freight market expectations and shipyard supply and demand dynamics, while secondhand prices are purely a reflection of the freight market outlook, the report explained. “As a result, with other shipping segments, most notably the drybulk market, the main competitor for shipyard space, suffering, shipyards don’t have an excuse to press for higher prices, as a result of increased tanker demand. Orders for most types of vessels have declined this year, except for tankers, resulting in an increase in the availability of newbuilding slots going forward. “Poten said that during 2014, almost 2,000 vessels were ordered across all sectors, while in the first six months of this year the total orders amounted to less than a quarter of this figure. The oil tanker segment was the only major category where 2015 year-to-date orders significantly exceeded 50% of the 2014 orders. “At the moment, newbuilding prices are relatively affordable compared to secondhand values, due to competitive forces in the shipbuilding markets, without being too high as they were in the 2007-2008 market peak. “The spot market strength is not yet fully reflected in vessel prices, which means there could still be opportunities for investors, the report concluded.”