Medium Range (MR) product tankers (40,000-60,000dwt) carry mainly refined oil products and vegetable oils, as well as some chemicals. The demand side is cyclical, with the OECD countries being the main driving force. Demand growth in Asia is also becoming steadily more important in this segment.
The tanker market did not fare much better with the owners in 2012 than the previous year. The market fundamentals did not change much from last year and continued oversupply of tonnage maintained the downward pressure on earnings as well as ship values. The larger crude oil tankers were the worst hit and if taking the increase in operational expenses today into account, the tanker earnings in 2012 were at all-time low levels.
For the product tankers the year started on a positive note. The market was in general, with the exception of a steep jump in fourth quarter, more stable than the crude oil market. The fundamentals were however not working in the favor of the owners. Higher oil prices in the US and Europe combined with declining import growth to the Asia/Pacific region led to lower product trade. It is estimated that global product trade in the first quarter declined 3.8 per cent compared to first quarter 2011.
Whilst MR tankers in the Atlantic still enjoyed a healthy demand during the first quarter, average rates across all major routes fell substantially. Spot earnings in the Atlantic fell from about USD 13,000 per day to about USD 10,000 per day on round voyage basis. However the steady increase in export of refined oil products from the US is playing an important role and owners that were able to utilize the triangulation in the Atlantic trade were able to secure earnings around the USD 13,000 per day level.
The pattern continued into second quarter and with an estimated 2.3 per cent year-on-year growth in the fleet and ton-mile demand down 1.1 percent, the downward trend of reduced earnings continued. Despite a slight increase in oil product import to Europe, slight increase in European gasoline export to Nigeria and increase in US diesel export due to a fire at Amuay Bay refinery in Venezuela, the spot rates plunged over the summer. Round voyage earnings were at certain trades at levels around USD 5,500 per day and again, only triangulation would give the owners earnings above operational expenses.
The relief came in October in the shape of Hurricane Sandy. Refinery capacity in the US East Coast as well as port capacity for handling product tankers were knocked out. The pipeline that supplies the US East Coast with about 2.4 MBD from the US Gulf was temporarily shut off. With limited number of US flag vessels available, Jones Act was temporarily waivered allowing non-US flagged vessels to supply petroleum products to the US East Coast from the US Gulf area. Single voyages paid in the region of USD 25,000 per day, whilst for the whole quarter earnings ended around USD 18,000 per day. The yearly average earnings for MR tankers ended at about USD 12,500 per day.
The weak market and global financial uncertainty put its toll both on time charter rates as well as ship values. 12 month time-charter for a standard 47,000 dwt product tanker was at the beginning of the year USD 13,700 per day level, but was slipping steadily during the whole year and ended at levels in the region of about USD 13,000 per day. The ship values followed the same pattern and new building prices fell from about USD 36 million at the beginning of the year to about USD 32 million at year end whilst a 5 year old ship fell from about USD 26.5 million to about USD 21 million.
Deliveries of new buildings were down by about 40 percent in 2012 compared with the year earlier, from 282 ships in 2011 to 115 last year whilst the number of ordered new buildings was almost doubled from 46 ships in 2011 to 88 ships in 2012. At the end of the year present order book represented 10.6 percent of the product tanker fleet which is slightly down from the year before.
Belships chartered in a product tanker, the “M/T Belaia”, in 2007, until 2014 with the option to extend for up to three more years. The ship was chartered out to J. Lauritzen AS until March 2012 the same year. The charterparty was in December 2011 extended until March 2014 at a net rate of USD 12,840 per day, slightly above the chartered in rate of USD 12,795 per day. Belships has also an option to buy the ship. This option price is currently above the assumed market value.
We expect the product market to begin its slow recovery during 2013. America’s role as growing exporter of refined oil products is opening up new trades and together with expected increase of product export from the Middle East, could well lead to a robust growth in ton-miles.
This, more than expected increase in traded volumes, will support an improvement in utilization ratio for the MR fleet and give room for increased earnings. As a consequence we believe that we will see the beginning of a recovery in ship values.