Slowdown in interest in the scrapping of tankers

Bimco expects fleet growth of 0.8% for the crude segment and 2.4% for oil products in 2018

The continuing difficulty of market conditions has caused tankers to reduce the excess capacity supply profoundly. Against this background, Bimco expects to be scrapped 19 million DWT of the capacity of the crude oil tanker fleet -about 13 million DWT in May- and that 2.5 million DWT of capacity will come from the oil products fleet, for over May’s 1.5 million DWT.

During the first six months of 2018, 13.1 million DWT capacity of the crude oil fleet were scrapped, a level equal to the total of the previous 40 months. Now there seems to have been a change in that trend, since only one VLCC was dismantled in July, and just over one million DWT was eliminated in total. Bimco expects there will be a cooling in the scrapping activity in the last six months of 2018, since it is likely that the market will generate somewhat higher freight rates due to the increase in demand in the second half of the year.

Although steel scrap prices are high at this time, paying up to US $ 17 million to a VLCC owner when it is discarded, this value is not the decisive factor: instead, freight rates and profits are.

The deceleration in interest in scrapping the oil product fleet emerged a month earlier, and no tanker left the ocean in June. Bimco expects the 2017 scrapping total to be exceeded soon and that 2018 will reach the highest level of tanker product recycling in six years, despite the recent slowdown in pace. During the first seven months, this fleet has abandoned 1.8 million DWT of capacity.

The growth of the fleet to date has been mitigated by the massive recycling activity. The crude oil fleet was 0.2% lower at the beginning of August than at the beginning of the year. Meanwhile, the oil products fleet has grown by 1.7% in the first seven months of 2018.

Bimco prognosis that the growth of the fleet for the full year of 2018 is 0.8% for the crude sector and 2.4% for the oil products sector.

After a surprisingly high number of new construction orders emerged during the challenging first half of the year, there were no new oil tanker orders in June. When observing the forecast of delivery of Bimco, the stop of the contracts of new capacity is very delayed and already it is clear that the industry must maintain high the activity of dismantling until the 2019 to avoid a worsening of the balance of the market.

For tankers of oil products, prospects are better; In addition, the orders of new construction in 2018 have been quite low, at a level that does not compensate, however, a possible recovery in the market when the demand improves.

The figures of early August show that the growth of the fleet has slowed considerably compared to last year: The crude oil sector grew by 0.7% and the oil products sector grew by 0.8%.

Daniel Bosch Wood

Maritimist Lawyer

LLM Southampton

Las Palmas de Gran Canaria