Five-year-old Suezmax tankers worth more than a newbuilding

The ‘historically low’ tanker orderbook of 2022 was not only a result of the pandemic, but also concern about emissions, uncertainty on future propulsion and possible options, and a sector of the fleet deployed in ‘dark’ trades exporting crude from Russia and Iran. However, the fact that secondhand tanker values are, in some sectors, significantly more than a newbuild order is unusual.

It could lead to over-ordering and long-term oversupply, according to analysis by London’s Baltic Exchange, which asks whether history could be repeating itself. The Baltic’s analysis reveals that ‘five-year-old Suezmax values make newbuilding prices attractive’.

Its assessment of the Suezmax sector used an average of Black Sea/Mediterranean and West Africa/Continent rates in its weighted average assessments of timecharter equivalents. Although earnings are still at healthy levels, the Baltic analysis reveals that rates have weakened over the last two years. Yet the value of a  five-year-old Suezmax has increased and is now more than 7% more than an estimated newbuild order value.

The Baltic’s analysis estimates the newbuild cost of a Suezmax at $77.3m compared with a five-year-old vessel worth $82.8m. The first-year cash breakeven timecharter equivalent for the new ship, assuming a 30-month build period, would be around $26,000 a day, the Baltic esimates. However, the five-year-old Suezmax would require a first-year cash breakeven of $30,200. Compared with the average timecharter equivalent rates over the last ten years, the newbuilding would be cash positive; the five-year old ship would not.

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Although many uncertainties complicate decisions on ordering new tankers, today’s dynamic in the Suezmax sector is unusual and possibly tempting, despite the likely build period. The Suezmax newbuild order remains attractive and the orderbook will likely continue to grow, the Baltic’s analysis concludes.