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Structural changes, low orderbook bring VLCC hope: Pareto

Structural changes to trading patterns and a low orderbook give some cause for optimism for the battered VLCC market according to an analyst from Pareto Securities.

Nicolai Hansteen, senior shipping analyst with Pareto, noted that while VLCC spot rates equated to just $10,000 a day, one year time charters were at $18,000 per day and three year time charters were at $22,000 - $24,000. “Which indicates this is a market in a contango structure,” he told the Marine Money Asia conference in Singapore.

There were a number of positive factors for the VLCC market looking ahead. Asian oil demand is increasing led by China and this will lead to changes in import patterns. Hansteen noted Chinese oil demand was being underpinned by the number of cars being sold in the country. Asia as a whole would boost oil imports by 700,000 barrels per day till 2018.

While some of this demand would be met from the Middle East, West Africa and Caribbean imports would increasingly come into play. “West Africa has appeared on the map for Far Eastern imports,” he said.

“There are some very, very big structural changes taking place here which may lead to more long haul trades for crude tankers.”

On the supply side Pareto estimates that the VLCC newbuilding orderbook is just 10% of the existing fleet and once the “dubious orders” from yards with a poor record of delivery are excluded this figure is just 7% of the existing orderbook. “Seven percent of the existing fleet does look very conservative,” he said.

 

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