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VLCC Tanker Market

Arjun Batra | Managing Director


16th March 2010, Marine Money - Hong Kong
VLCC Market 2000-2010

VLCC spot and one-year time charter rates Newbuildng & secondhand 5 year old prices
180 180
160 160
140

US$ million
'000 $/day

120 140
100 120
80 100
60
40 80
20 60
0 40

Jan-Feb’10
1Q00

4Q00

3Q01

2Q02

1Q03

4Q03

3Q04

2Q05

1Q06

4Q06

3Q07

2Q08

1Q09

4Q09

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
VLCC Spot TCE VLCC 1 yr TC VLCC (Newbuild) VLCC (Secondhand)

‰ Benchmark VLCC time charter rates in 1Q10 (Jan-Feb) are down by 64% as compared to the peak in 3Q08.

‰ New building prices are down by 40% from the highs in 3Q08, while second hand prices down 50%.

‰ The VLCC market is still above where we started the decade in 2000 i.e. it is not that bad out there!!!

1
Tanker fleet development

Tanker fleet growth


500 ‰ Tanker fleet is projected to rise significantly over
450 Forecast
400 the next three years, rising by a CAGR of 5%
million dwt

350
300 through 2010-13.
250
200
150 ‰ Highest growth expected in 2011 (up 7.4%).
100
50
0
‰ There will be cancellations and delays which will
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015
push the current order book to 2013 and beyond.
Handy Panamax Aframax Suezmax VLCC

Whats on order? When is it due to be delivered?


Orderbook 30
Orderbook 61.8 Mdwt
25
19.7 Mdwt 200 ships
Orderbook

million dwt
40% Orderbook 125 ships 20
8.2 Mdwt 20.5 Mdwt
30% Orderbook 125 ships 15
186 ships
% of fleet

5.2 Mdwt
20% 137 ships 10

5
10%
0
0% 10 11 12 13+ 10 11 12 13+ 10 11 12 13+ 10 11 12 13+ 10 11 12 13+
Handy Panamax Aframax Suezmax VLCC Handy Panamax Aframax Suezmax VLCC

2
VLCC fleet development

VLCC deliveries and deletions How much will be delivered and when?
25 68 ‰ Significant VLCC tonnage (~53 million dwt) to be delivered
More new
20 53 through 2010-12. Deliveries will peak in 2011. We have
51 47 orders?
15 37 41 assumed some of the current order book will be delayed
million dwt

29 31 29
10 24 until the 2013-2015 period.
18 15
5 3
0 ` How much will be removed and when?
-5 4 1 4 6 2 3
10
19 19
-10 ‰ About 24 million dwt of VLCC tonnage is SH/DB/DS.
34 37
-15 Approx. 10 million dwt of VLCC’s aged 13-16 years likely
2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015
to continue to trade beyond 2010, trading to China, India,
Taiwan.
Deliveries Deletions
‰ Conversions into bulk and offshore projects.

Projected VLCC fleet VLCC fleet development


250 14%
Forecast
12%
200 VLCC CAGR (2005-09) = 6.9%

% change y-o-y
10% VLCC CAGR (2010-15) = 4.3%
million dwt

150 8%
6%
100 4%
VLCC: Feb’10 162.7 Mdwt
2%
50 2013 205.4 Mdwt
0%
0 -2% 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015
2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

VLCC Total Tanker

3
Crude oil trade

World consumption World production


2000-2013 2000-2013
-13 100
95 22000099-134%
. %
AG GR R 11.4 90
90 -099 CA
C
22000000-0.2%% 80 2009: 39.7% 2013: 42.8%
R 11.2

million bpd
R
million bpd

85 C A
A GG 70
C
60
OPEC
80
50
75
40
70 30 Non-OPEC
65 20

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013
Oil demand/supply growth Planned refinery capacity additions
10% 2,500
8% 2,000

'000 bpd
6% 1,500
% growth

4% 1,000
2% 500
0% 0

Africa

FSU
Other
China

Middle

America

America

Europe
OCED
Asia
OECD FSU Asia Latin Middle Africa

OECD
East

North
-2%

Latin
America East
-4%
Oil demand CAGR (2006-08) Oil production CAGR (2006-08) 2010 2011 2012 2013 2014

4
Tonnage demand

GDP vs Oil consumption vs Tonne-mile trade China oil imports


16% 100 42% 250
Forecast
12% 80 200
% change y-o-y

million tonnes
million tonnes
37%
8% 60 25% 150
43% 24%
4% 40 21% 100
26% 12% 10%8%
19% 11%
0% 20 50
5% 4% 4%
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012
-4% 0 0
2000 2004 2008
-8%
Oil consumption Tonne-mile trade Middle East Other Asia Pacific
Africa FSU
Global GDP America and Europe Total (right axis)

China Total 2008: 217.8 million tonne

VLCC and total tanker demand growth


10 ‰ GDP drives oil consumption and tanker trade.
% change y-o-y

5
‰ Changing trade patterns are evident. For instance,
0
China’s reliance on imports from Africa and Middle
-5 East is rising.
Forecast
-10
‰ Inventory building and speculative demand.
-15
2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

‰ Consequently, VLCC demand is rising faster than


the overall tanker demand.
VLCC Total Tanker

5
VLCC supply & demand balance
VLCC supply-demand balance
220 80
Avg. for More orders?
Jan-Feb'10 70
200
60
million dwt 180

'000 $/day
50
160 40
Forecast
30
140
20
120
10
100 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ship supply Demand - Case 1


Demand - Case 2 Spot TCE (right axis)

Demand Case 1
‰ Demand recovery is expected to be strong especially when seasonality,
Oil demand growth 2009-15 1.4%
speculative, inventory building is factored in.
Oil trade growth 2009-15 2.7%
‰ The current order book is a big problem for the supply side, however
VLCC Tonne-mile growth 2009-15 6.1%
delays, cancelations and phasing out of single hulls will assist.
Demand Case 2
‰ On balance we would expect a weak freight market into 2012, after which
Oil demand growth 2009-15 2.2% there could be a gradual recovery.
Oil trade growth 2009-15 4.2%
‰ However………………..
VLCC Tonne-mile growth 2009-15 7.5%

6
Summary

Shipyard capacity
‰ Recovery if any, will be fragile and only
200
180
if there are no further new building
160 ordering.
140
Shipyards ‰ There is excessive shipbuilding capacity
million dwt

120
have and yards will reduce prices to get new
100
plenty of orders rather then be idle.
80
capacity
60
40
‰ New orders will further delay recovery.
20
‰ Lower New building prices will act as a
0
cap to second hand values.
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013
‰ We have already seen new orders
placed this year.

‰ Good news: demand will be strong.

‰ Manageable news: order book is too large.

‰ Devastating news: there is far too much shipbuilding capacity but


equally dangerous is there are ship-owners there who will order
more and worse still is that there are banks there who will finance
them.

7
Thank you

5 Shenton Way Arjun Batra | Managing Director


#33-02 UIC Building
Singapore 068808 batra@drewry.co.uk
+65 6220 9890
+65 9026 7320 (Mobile)

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