Tanker A year of opposites 2020 will live long in the memory of tanker market participants as rarely have seasonal norms been turned on their heads and extreme highs and lows been touched within the same 12 months. Although the impact of the Covid-19 pandemic cannot be underestimated, the impact of Saudi Arabia instigating an ill-fated brutal battle for oil market share against the backdrop of cratering global oil demand should not be forgotten. This proved to be the catalyst for the chaos which filtered into all tanker segments from small tankers to VLCCs and from which markets have yet to truly recover. 67 FRONT CORAL Suezmax tanker, 157,522 dwt, delivered in 2017 by New Times SB (China), operated by Frontline.
Transcript
Tanker
A year of opposites2020 will live long in the memory of tanker market participants as rarely have seasonal norms been turned on their heads and extreme highs and lows been touched within the same 12 months. Although the impact of the Covid-19 pandemic cannot be underestimated, the impact of Saudi Arabia instigating an ill-fated brutal battle for oil market share against the backdrop of cratering global oil demand should not be forgotten. This proved to be the catalyst for the chaos which filtered into all tanker segments from small tankers to VLCCs and from which markets have yet to truly recover.
67
FRONT CORALSuezmax tanker, 157,522 dwt, delivered in 2017 by New Times SB (China), operated by Frontline.
2020 (-14 units y-o-y). Indeed, against this backdrop and considering that global tanker demand remains significantly below pre-pandemic levels, almost all segments are currently overtonnaged. Considering our projection that tanker demand will remain curbed this year, this suggests that something must give on the supply side. To this extent we expect that a prolonged period of extremely low hire rates will lead to an uptick in demolition, the cumulative effect of which should support rates later in 2021. Indeed, if this were to coincide with seasonally stronger tanker demand at end-year, there may be light at the end of the tunnel.
Extremely low crude prices also encouraged refiners to run at strong rates over the second quarter. Considering the background of plummeting demand, these products swelled inventories and tank tops came under extreme pressure at key terminals. Similar to the crude segment, this led to a large tranche of the CPP tanker fleet being secured under short time charters for floating storage. Meanwhile, other waited for weeks or even months outside key terminals for tankage to become available so that they could discharge their clean cargos. The impact of this tonnage cannot be underestimated as it helped to propel hire rates for CPP tankers into the stratosphere.
Since late June, it has all been downhill for the tanker market. Tanker demand dropped as Saudi Arabia swiftly halted its battle for market share while this also saw the OPEC+ Alliance revert to their market management role and cut a record 9.7 mb/d of crude production. Both clean and dirty tanker demand has collapsed in the wake of oil demand trending significantly below its pre-pandemic level. Meanwhile, the record oil inventories built over 1H20 are now being steadily drawn which is substituting oil imports for oil already in inventory. As crude prices moved higher in 2H20, this saw contangos in crude and product markets narrow and eventually return to backwardation which, in turn, has driven traders to offload much of their floating storage. In turn, this has hit the tanker market with a ‘double whammy’ as volumes previously held in floating storage are replacing oil imports while the tonnage is re-entering an overtonnaged tanker market and thus adding to the downward pressure on hire rates. As such, with very few exceptions, hire rates trended at close to record lows over 2H20 with no traditional 4Q bounce.
As we turn our attentions to 2021 it is undeniable that the tanker market is not in a good place with rates for many tankers currently plumbing multi-year lows. However, we suggest that the stars are starting to align which could provide some respite for owners later in the year. Nonetheless, as the tanker market continues its long and difficult road towards its pre-pandemic level there will undoubtedly be several bumps it will have to negotiate first.
In early 2021, global oil demand remains around 7 mb/d below its pre-pandemic level but as vaccines are rolled out over the next twelve months, we project that by the end of the year, this gap could be reduced towards 2 mb/d. However, forecasting continues to be a hazardous business considering that significant uncertainty and downside risks remain, especially surrounding the speed and efficacity of the vaccine rollout. Furthermore, oil supply should steadily increase this year in tandem with demand. This will see OPEC+ gradually increase their production and exports from 2Q onwards. Meanwhile, in the wake of Saudi Arabia’s recent decision to defend prices over market share, US production is now forecast to rebound faster than previously expected which coupled with US – Chinese relations remaining steady should se more US crude imported by China, thereby supporting ton mile demand. On the refining side, runs will gradually pick up as the inventory overhang is depleted which will add to CPP tanker demand. However, a caveat remains over how refining in Europe will recover. If currently shuttered European plants do not reopen, this could open the door to an increase in long-haul middle distillate imports from East of Suez.
Finally, the supply-side picture remains delicately poised. Last year saw 172 new tankers of 34,000 Dwt or above delivered, the lowest since 2017 and 77 units less than 2019. Indeed, all tanker segments saw lower deliveries year-on-year (y-o-y) bar Suezmaxes. That is not to say that fleet fundamentals remain tight considering that demolition dropped off a cliff with a meagre 25 units of 34,000 Dwt or above sent to the breakers in
By mid-February, the world was waking up to the menace posed by Covid as it spread well outside Asia and initial projections of a gentle deceleration in global oil and tanker demand growth along the lines of the 2002-03 SARS outbreak proved to be wide of the mark. As the world was starting to be locked down, especially in the east, oil demand contracted at a rate of knots, crude prices softened, and markets flipped into contango which was music to the ears of traders and charterers.
Against the backdrop of the Covid outbreak evolving into a full-blown pandemic, early March saw Saudi Arabia fire the first shots in a battle for oil market share after OPEC and their non-OPEC partners were unable to agree on their future output strategy. This saw Saudi Aramco hike their crude exports by almost 3 mb/d to a hit record 10.2 mb/d in April with other producers swiftly following suit. As Saudi dipped into spot tanker markets and hired a dozen VLCCs, this helped propel VLCC tanker rates back towards the stratospheric levels of $200,000/day seen over 4Q19. As was the case at end-2019, high rates eventually filtered down to smaller tankers. However, perhaps the biggest impact this huge increase in oil exports had, was that it saw global onshore storage capacity come under severe pressure during the second quarter. In turn, this drove crude prices lower and by late April the mounting panic over access to storage was illustrated by NYMEX WTI prices dipping into uncharted negative territory.
As panicked traders looked for places to store both crude and products, tankers become increasingly attractive which saw a huge swathe of the fleet secured under short (3 to 12 months) time charter deals. In turn, vessels used for floating storage led to less tonnage available for general trading which helped to support spot hire rates during the early part of 2Q. By this point China was starting to emerge from lockdown and its refiners accordingly ramped up activity. Its hawkish traders also saw value in extremely low crude prices and consequently upped their purchases from all over the globe, but especially the Atlantic Basin, which helped to add to ton mile demand for all crude tanker segments from Aframaxes upwards.
The year started as 2019 had ended, that is to say, in chaotic fashion, as 0.5% sulphur bunker prices surged in the wake of tight supply while at many bunker terminals, ships experienced long waits while securing these fuels. On the other hand, following the roller-coaster ride, which was 4Q19, there were initially expectations that tanker markets would weaken as the US and China improved their relations which saw the US withdraw the sanctions it had previously placed on a major Chinese shipowner.
*TD3C at $300,000/day in October 2019
BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021
Million barrels
Total* �oating storage
source: Alphatanker*includes crude, CPP and fuel oil
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Total* floating storage
Million barrels *includes crude, CPP and fuel oil
source: Alphatanker
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TANKERMARKET OVERVIEW
Annual Tankers* deliveriesN° of ships
Annual Tankers* demolitions
MR1MR2
Suezmax Aframax LR2
Panamax
VLCC
LR1
Annual tankers* deliveriesN° of ships
Annual tankers* demolitions
MR1MR2
Suezmax Aframax LR2
Panamax
VLCC
LR1
2000 20202005 2010 2015
2000 20202005 2010 2015
*34,000 dwt and above
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Annual tankers* deliveriesN° of ships
Annual tankers* demolitions
MR1MR2
Suezmax Aframax LR2
Panamax
VLCC
LR1
2000 20202005 2010 2015
2000 20202005 2010 2015
*34,000 dwt and above
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TANKERCRUDE TANKER
the supply side was the catalyst to the gradual decline in rates. With tonnage over supplied, VLCC earnings plummeted and averaged $14,200/day over 2H20, a great deal less than the $59,200/day averaged over 2H19. It must also be noted that Chinese inventory draws over 2H20 helped cushion the supply deficit as Chinese oil demand started to recover, while most western economies remained under significant pressure from Covid-19.
The impact of the demand for floating storage was especially pronounced in the VLCC segment due to the economies of scale afforded by these units Accordingly, the storage play became ever more attractive with many traders securing profitable period deals. We estimate that at its peak, 113 VLCCs were deployed for storage over short to medium periods, accordingly, cutting tonnage supply.
With storage a momentary shift in fundamentals arrived but when taking a forward view into 2021, it must be said that tonnage supply will play a vital role in the eventual recovery of hire rates back to pre-Covid levels. With expected tanker earnings likely to remain in a rut over the first three quarters of 2021, we anticipate scrapping to increase significantly. What is more, the VLCC order book for 2021 is historically low level with only 35 units slated to enter the market.
Considering the challenges of 2020 and the changes these brought to freight markets, tough times lie ahead, and difficult decisions will be made. However, in times of hardship, the increased number of scrapped VLCCs may kickstart fundamental change in the VLCC market that will be beneficial over the long run. Furthermore, the stars are aligning which should support the market in the second half of 2021 and beyond. Support will likely come from vaccine rollouts, changing political figures and as global GDP continues its long and difficult ascent back to its pre-pandemic level.
SuezmaxEarly trading in January and February registered slightly better returns for owners compared with the previous year at around $40,000/day on average on TD20 (West Africa – UK Continent) and TD6 (Black Sea – Mediterranean) This sparked hopes that markets would finally recover from the previous
year's slump and allow owners, who had invested in scrubbers, to pay back their investment. Thereafter came the spike which lasted from mid-March until end-May amidst the supply crisis provoked by the Saudi-led, OPEC+ decision to pump extra barrels. This saw Suezmax TCE earnings soar to $100,000/day for some trades / fixtures. However, the euphoria was short-lived when the Covid-19 reality kicked in. Accordingly, markets dropped and hit the bottom both in terms of demand and rates. This saw Suezmax earnings slump below OPEX levels during the summer, from which they never managed to recover with the usual rise in Q4 earnings missing last year.
After the spring spike, the vast majority of cargoes from the Middle East Gulf were sold to China and shipped on VLCC's. This left few cargoes for the available Suezmax tonnage with no other choice for many than ballasting from the far east towards West Africa or directly to the Mediterranean and Black Sea, thereby adding more ships to already overpopulated markets. With Russian production curbed by the OPEC+ supply deal, Black Sea and Baltic exports slumped too. Meanwhile, European refiners were supplied mainly by West Africa, thus not helping ton-mile demand.
It was not all doom and gloom at end-2020 as Libya came back and quickly hiked its production from 0.3 mb/d in early October to 1.2 mb/d in December. By early 2021 exports were similar to levels seen at end-2019 prior to Force Majeure being declared in February 2020.
The global Suezmax fleet (excluding shuttle tankers) stood at 570 units by end-2020, 26 units higher year-on-year following 30 deliveries, 1 scrapping and 3 conversions last year. The fleet remains relatively young at around 9 years of age. The Suezmax segment is second largest crude tanker segment on order with 39 orders placed in 2020 bringing it to a total of 69 ships due for delivery over between 2021 and 2023. In comparison there are 80 VLCCs on order and 67 Aframaxes. The big question for 2021 remains scrapping. The last major scrapping occurred in 2018 as 21 units hit the beach. By 1 January, 48 ships had reached 20 years old or more, which accounted for 8 pct of the fleet. Meanwhile, a further 113 units are between 15 and 19 years old. With returns expected to remain low during 1H21, we can reasonably forecast scrapping to increase, especially in the wake of current buoyant steel prices.
AframaxTo say that the last twelve months have been a rollercoaster ride would fail to describe what has been a truly dizzying year for the Aframax markets. Looking South; a quick glance at the past six years shows us that TD19 — the Aframax Mediterranean benchmark route running from Ceyhan to Fos — has never traded as high (Worldscale 233) or as low (Worldscale 55) as in 2020, thereby underlining the year’s deeply perplexing and radically binary parkour. Meanwhile, TCE earnings reached vertiginous heights for owners, breaking the $90,000/day mark — something unseen since 2015. The golden zenith meant that the negative freight returns that many Owners have grown accustomed to during the last few months were somewhat easier to digest.
From a more regional perspective, the most significant development in the Mediterranean was the brisk comeback of onshore Libyan crude production, which, by the time of writing, is estimated at close to 1.2 mb/d. This marks a colossal turnaround from the scanty 70 kb/d the country dribbled out until early autumn. Nevertheless, one must bear in mind that the country’s comeback rests upon a delicate ceasefire between Libya’s warring factions, while the nation’s long-term sustainability and stability is contingent upon foreign investment… The road ahead is long and full of potential setbacks.
Looking at the North Sea and Baltic, one of the defining moments last year was April 2020. The increased production coupled with refinery cuts meant that Urals barrels were virtually impossible to place (we had seen glimpses of this in 2019). Out of 68 Urals stems in April, 20 were sold East of Suez
to China, Korea and Malaysia, which is uncommon for Aframaxes as these barrels are normally transferred to larger crude tankers in the North Sea before sailing to Asia. Since rates for Suezmaxes and VLCCs were already sky high, Aframaxes were fixing at over $5 million for these runs – a rare occurrence with owners locking in huge returns.
Rates on TD7 and TD17 reached equally bewildering heights as their Mediterranean counterpart; the former route reached a maximum of Worldscale 208, while TD17 broke the TCE ceiling of over $116,900/day— both of which have set new records in comparison to the last six years.
Looking forward, we expect the Aframaxes to follow a similar path to the Suezmaxes and VLCCs, with 1H21 to remain fairly depressed until Covid-19 is slowly brought under control via the roll out of vaccines. One important factor to note is that 38% of the Aframax fleet is over 15 years old and the ratio of the existing fleet versus the orderbook stand at only 10% which will not offset the ageing fleet. Therefore, as economies restart there is a still a glimmer of hope for better days ahead...
VLCCLast year, as with all crude tanker markets, the VLCC market can best be described as a tale of two halves. The first half was characterized by soaring returns with the second half seeing the gradual and steady decline in hire rates.
The year was fraught with difficulties as market fundamentals soured and the operational framework changed for many shipowners. Faced with growing concerns on obtaining approvals as well as crewing issues, many stakeholders in the VLCC market had to adapt to a new set of constraints that challenged the norm. However, looking back at this historically significant year for freight, some positive can be drawn from it, which in turn will shape the tone for 2021.
Morale was low at the year’s end. However, the annual average VLCC TCE for TD3C (Ras Tanura -Ningbo) came in at $48,300/day, a sizeable increase on 2019 when it averaged $39,600/day. Led by a strong 1H20 average of $82,400/day where VLCC demand rose exponentially in light of the gradual east to west sweep of Covid-19, the ill-fated battle for oil market share led by Saudi Arabia and Russia and the associated crash in crude oil prices, we saw unprecedented purchases of cheap crude, predominantly by Chinese interests. Accordingly, VLCC tanker rates sky-rocketed on all main trade routes.
Yet as key oil consumers entered prolonged periods of lockdown, the global demand for oil started to contract sharply and fell by 16 mb/d year-on-year over 2Q20. To this effect, OPECs decision to cut a record 9.7 mb/d from
Tough times lie ahead, and
difficult decisions will be made
Picture: ZAKUM , VLCC tanker, 299,995 dwt, delivered in 2019 by Daewoo (Republic of Korea), operated by ADNOC. BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021 Picture: IONIC ARIADNE , Aframax tanker, 112,007 dwt, delivered in 2020 by Sumitomo Yokosuka (Japan), operated by Ionic Ship Management.
CRUDE TANKERS
LR1Mirroring the LR2 segment, the East of Suez LR1 segment enjoyed healthy earnings over the first half of the year. TC5 runs between the Middle East Gulf and Japan carrying 55,000 mt peaked at WS 450 which equated to earnings of $110,000/day based on a roundtrip, historically high levels to say the least. Although the segment benefited less from the storage play factor, demand remained healthy with traders looking to deliver product on a more flexible size. The scrubber retrofitting of certain vessels meant tonnage was out of the market during the first half of the year, thereby reducing capacity. In addition, low bunker costs helped boost owners’ margins. However, Q3 and Q4 saw product demand plummet with TC5 earning approximately $5,000/day at its nadir. It is difficult to be optimistic for 1Q21 as fundamentals do not imply an increase in either product or tanker demand. On the other hand, maybe the East of Suez market will benefit from older European refineries cutting runs or closing and pick up the slack of those missing volumes.
MRWhat a year it has been for the MR market in the Middle East. Of course, as with other segments, the most important factor was Covid-19. The chaos which ensued propelled the market to the highest levels we have seen in many years. Indeed, some MR owners have posted their highest earnings ever. For example, at its peak a Middle East – UK Continent voyage saw rates hit $4 million which equated to TCE earnings of $80,000/day. However, as global oil demand fell and product stocks built, hire rates fell back which saw TCE earnings drop to around $5,000/day in Q3 and $12,000/day in Q4. Overall, 2020 has been a better year for owners than 2019. Accordingly, earnings have improved, averaging $17,000 to $18,000/day over the year. In comparison, 2019 averaged $14,000-$15,000/day.
LR2The East of Suez CPP market predictably had quite an eventful year that can be separated into two distinct periods.
Firstly, the January - June period where earnings for an LR2 hauling 75,000 mt of naphtha between the Middle East Gulf and Japan peaked at $120,000/day. Meanwhile, freight for transporting 90,000 mt of ULSD from the Middle East Gulf to the UK Continent peaked at $7 million.
The modern refineries in the Red Sea, the Middle East or West Coast India, with at least 400 kb/d of capacity each, were a big factor behind the spike as low crude prices and high refining margins encouraged these plants to maintain throughputs at close to full capacity. Furthermore, the wide contango in product markets encouraged traders to store products on ships. Due to their improved economies of scale, LR2s were the main beneficiaries of such storage plays. Eventually this created a shortage of tonnage. Some storage deals were concluded at rates in excess of $50,000/day.
After the summer kicked in, the picture turned gloomy with the real effects of low product demand catching up with the shipping demand. Traders discharged volumes previously held in floating storage while low refining margins in the wake of higher crude prices saw refiners cut output as much as possible. Another factor hurting the segment was the competition from Suezmax and VLCC newbuilding deliveries which saw distillate traders storing product at cheaper levels and in larger quantities. A clean trade which was initially intended as a temporary positioning voyage for crude tankers now saw ships staying clean due to better earnings. Indeed, most of these ships stayed clean until the end of the year. Inevitably all these factors contributed to earnings for the segment remaining in the $5,000 - $20,000/day range over the second half of the year.
Optimism remains low for the prospects of the LR2 segment in 2021 given that low product demand is anticipated to persist over 1H21while there is a chunky Suezmax and VLCC orderbook to be delivered. One can only hope that the vaccine rolls out will help product demand to recover.
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TANKERPRODUCT TANKER - EAST
TANKERPRODUCT TANKER - WEST
were extremely volatile during the year, starting in the low $60’s per ton and finishing in the high $30’s per ton. This produced daily returns above $30,000/day at their highest to $10,000/day at their lowest.
Three factors impacted logistics during 2020: Firstly, major delays at some Brazilian ports. Secondly persistently low water levels in the Parana river throughout year and thirdly, a long-lasting strike during December. Despite these issues, exports remained strong.
Sunflower oil exports from the Black Sea reached about 4.5 million tons in 2020, approximately 20% more than the previous year. This trade employed about 125 MR1s or MR2s going to various destinations such as India, China, the Middle East Gulf and Northwest Europe.
BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021
On the other hand, the LR1s faired less-impressively following the initial onset of the pandemic, often having to compete with an under-demanded, over-supplied and short ton-miled MR market. It was also hit by the shortfall from West African deliveries which resulted in quicker-than-normal turnarounds in the region, thus maintaining a steady supply of tonnage. We saw moments of exception on the LR1s, but this was often driven by a busy US export market which absorbed ballasters coming from both South America and West Africa – again demonstrating how some of the trade flows have been outside the norm.
The current LR2 orderbook stands at 12.6 % of the existing fleet and the current LR1 orderbook stands at 1 % of the existing fleet.
MRThe year did start fairly positively with owners feeling that finally this was going to be the start of something great but as the majority of the world went into lockdown due to Covid-19 during February – March, the global demand for oil plummeted. During spring, the main topic of conversation was storage. Following the crash in oil prices, traders and oil companies decided it was time to store oil until prices would start to rebound. The demand for storage took out a large supply of tonnage from the spot market for fairly long periods and the highest recorded rate fixed on TC2 was 37,000 mt at Worldscale 280 which gave owners a healthy TCE of about $45,000/day. It has all been downhill from there and since July – August we have rarely seen TC2 rates exceed WS 100, with the lowest recorded TC2 fixture being 37,000 mt at WS 67.5 in November. This provided owners TCE earnings of about $2,000/day. Overall, it has been a year no-one could ever have predicted and now with vaccines being rolled out slowly but surely and international travel looking more certain, the outlook for 2021 looks a lot more positive!
The current MR orderbook stands at 10% of the existing fleet.
Handies
A fairly similar story to the MR segment with a natural positive start due to the ice season in the Baltic (albeit with very little ice). However, as both sectors remained weak for the majority of the year, more often than not we saw traders prefer to take MRs where and when possible, as it made more financial sense to do so. Although TC9 managed to reach as high as WS 435 for 30,000 mt in April giving a TCE of about $70,000/day. On the other hand, about the lowest recorded was WS 85 for a 30,000 mt cargo which equated to a TCE of about $2,000/day, a level which has persisted since the summer.
The current Handy orderbook stands at less than 1 % of the existing fleet.
Edible OilsVegoil
Soya bean oil exports from Argentina increased again by 6% year-on-year in 2020 to approximately 7.3 million tons. Out of the 196 MR1s or MR2s that were fixed with vegoils during the year, 132 went to India which was again by far the main importer. Biodiesel exports were lower compared with 2019 with about 660,000 mt of Soya Methyl Esther imported by Europe, employing 22 MR2s. A total of 218 MR1s or MR2s were chartered from South America with vegoils and/or biodiesel during the year. Freight rates
Maybe the East of Suez market will benefit from older European refineries cutting runs or closing
Picture: TORM ELIZABETH , LR1 tanker, 74,999 dwt, delivered in 2020 by GSI, operated by Torm. Photo: Electrician Hernandez, Ariel Garcia.
PRODUCT TANKERS – EAST
PRODUCT TANKERS – WEST
It is difficult to describe a year which was so exceptional with market players on both sides experiencing extreme situations. That being said, the common feeling is that overall, it was more positive than negative but not for the right reasons and left questions being asked of what is normality and what is the benchmark?
LR
Like all markets, last year saw extreme volatility largely as a consequence of the Covid pandemic, the impacts of which continue to rewrite virtually every preconceived idea we had of the LR markets. Most significantly, reduced global oil demand drove a surge in short-term storage activity which saw 15-20% of the LR2 fleet taken off the market at any given time and delays at discharge which, at times, saw a similar percentage unavailable to the spot market. Initial storage for 4-6 months was largely redelivered or extended as the anticipated rebound from the pandemic is yet to be realised. However, vessels’ discharge orders continued to be uncertain and trade flows were often quite unfamiliar (storage of jet is new), making market forecasting very difficult.
Toward the end of the year, markets seemed to have adapted; a combination of storage and uncertain itineraries have largely balanced the reduced refining activity. This is demonstrated by the fact that, on an annual average basis, the LR2 segment stubbornly maintained some of the best returns of any tanker sector in 2020.
1yr TC ECO ratesMillion of
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As with all other markets, 2020 was a year which was dominated by Covid, quarantine and lockdowns. However, the Tanker FFA market saw record levels of activity throughout the first two quarters of the year. Initially thoughts were that the pandemic would be controlled and therefore be quickly over. With an oil curve in contango and available vessels for storage at reasonable levels the storage play was on and traders hedged their exposure as this started to drive tanker chartering rates upwards. As the virus spread and more countries locked down, in April, the WTI May expiry contract collapsed to historic lows. With land storage full and WTI being a physically deliverable contract, people panicked to exit their positions from the landlocked delivery point, driving down global benchmark oil prices. This fueled some of the larger trading houses to go longer on storage as oil fell. With the available fleet of VLCC, MRs and LRs now depleted due to storage, owners found themselves in a good position. In Q2, the already high freight rates were further intensified by the toughening of sanctions on Venezuela which at first looked like it might have a significant impact on numerous vessels. Traders were going long paper and owners were happy to sell into the near historic rises, a situation that seemed at one point to favor all parties. The world’s economies continued to shrink and with it, oil demand. A massive reduction in global air travel drove the demand for jet, gasoline and naphtha to ever diminishing levels and shipping rates followed suit. Owners pinned their hopes on an active Q4 as is historically traditional. This wasn’t to be the case and we saw tanker rates slump to levels at which traders saw little point in hedging against.
Palm Oils
Approximately 280 MR1s or MR2s were fixed to carry palm oil from Indonesia or Malaysia to Europe and the US in 2020, slightly less than the previous year. Out of the 75 MR2 newbuildings that were delivered in 2020, 40 units were fixed with palm oils on their maiden voyage. Daily returns peaked at $20-25,000/day in the first semester for an ecoship but weakened towards the end of the year to reach approximately $15,000/day. We expect approximately 90 MR2s to be delivered in 2021, providing again a good source of FOSFA tonnage for palm oil traders.
Fuel Oil
Overall, 2020 was a negative year for owners, especially when compared with 2019. The pattern of the market trend was also different. Surfing the wave of a good 4Q19, the market experienced a strong start in January which persisted until end-February. Thereafter, thanks to plummeting oil prices which drove a hike in refinery output, plus demand for storage, we saw a spike at end- April which lasted approximately 3 weeks where the market reached WS 350 for a 30,000 mt cargo for a Black Sea – Mediterranean run. However, from the third decade of May onwards, the levels started to drop.
After a very weak Q3, Q4 never really kicked in, with only a mini spike during the first half of December, where
rates peaked at WS 170 for a 30,000 mt cargo ex-Black Sea. During this flash in the pan, some of the main Black Sea and Mediterranean Charterers including Trafigura and Newton mainly took Handies or MRs on time charter for 3 to 6 months at rates of between $11,000 and 12,5000/day, although this was nothing compared to the quantity of deals which were done in 4Q19.
The Black Sea once again outperformed the Mediterranean, as the largest exporter of 30,000 ton stems. On the other hand, 45,000 mt stems seemed to be a rare commodity throughout the year. Trafigura and Newton were the biggest players followed by Coral energy, Tupras, Petraco and Litasco. The Mediterranean continues to have a high percentage of Handies and MRs which are older than 15 years old, despite owners such as Moller managing to send most of their older units to the Far East and renew their fleet in the Mediterranean. In general, the variety of players in the region allows >15-year-old ladies to be still easily tradable.
Contrary to the Mediterranean, the units trading in northern Europe are mostly below 15 years old, as some large charterers have age restrictions in terms of vetting. Total remains the biggest player in the market, with a strong presence not only in terms of cargoes, but also in terms of relets. Litasco had a busy year especially from the Baltic, together with Trafigura and BP. The UK Continent market overall was played mainly also by Shell, Clearlake, Petroineos and Repsol.
If the question moving between 2019 and 2020 was the impact of IMO 2020 regulation on the markets, the obvious question between 2020 and 2021 is related to when the world will start to see light at the end of the pandemic tunnel. The sentiment moving into early 2021 is not the most positive, but there is confidence that the market will be boosted again in the second half of the year, when Europe and other hard-hit regions will hopefully start to see the benefits of the vaccine rollout.
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The year ended with diverging ideas. On one hand, the uncertainties for 2021 weighted on charterers’ appetite for tonnage, while the progress on the rollout of Covid vaccines contributed to fuel owners’ expectations for a stronger 2H21. This accordingly boosted owners’ rate ideas for 1 year and longer periods.
Next year, TC activity is likely to increase alongside the vaccination campaign which should help economic activity and prevent new lockdowns. Expectations of stronger global oil demand (which will lead to higher Oil production) should then encourage charterers to increase TC coverage. During the first half of the year, TC rates could therefore increase more rapidly than spot freight rates.
FFA MARKET
TANKERFFA MARKET
Picture: HAFNIA NANJING , LR1 product/chemical tanker, 74,999 dwt, built by Guangzhou Shipyard International (GSI) for HAFNIA, delivered on January 2021.
2020 started with a focus on the 0.5% Sulphur cap on bunkers and its impact on bunker costs and oil flows. However, the time charter (TC) premium on scrubber-fitted vessels collapsed in early March 2020 in tandem with narrowing high - low sulphur fuel spreads. The increase in crude oil production from OPEC+ against the backdrop of Covid-led oil demand destruction, led a super contango to form. Accordingly, demand for tankers to be deployed for floating storage and hence TC activity surged. Initially this lifted crude tankers which was swiftly followed by clean tankers.
Almost 50% of last year’s VLCC, Suezmax and Aframax TC fixtures occurred between March and May. The lion’s share of fixtures were for less than 1 year. Indeed, these accounted for around 70% of the TC fixtures made during this period. TC rates rose significantly to hit record levels. Several 6-month TCs on VLCCs, the most active segment, were fixed at rates of above $100,000/day. Meanwhile, 1-year deals were fixed at between $50,000 to $85,000/day.
For clean tankers, the period between March and June was most active, accounting for 49% of TC fixtures on clean tankers last year. MR2s followed by LR2s were the most active segments among clean tankers. Short TCs (less than 1 year) on clean tankers also accounted for the majority of the reported TC deals. Several LR2s were fixed for 6-month periods with rates above $50,000/day, while MR2s saw 6-month TC deals at around $25,000/day.
Following a quiet summer and a sharp decline in TC rates alongside spot hire rates, September and October saw a small rebound in crude and clean tanker TC fixtures. Some charterers, mostly traders, managed to extend their short TCs done between March and June 2020 at a lower rate. On the other hand, some oil majors have taken 1 to 2 years TC coverage during this period to take advantage of lower TC rates ahead of an anticipated recovery in freight rates in 2021 and 2022.
TIME CHARTER
BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021
One Year Time Charter Hire Rates (Eco tankers)$k per day
Jan Feb AugJunApr JulMayMar DecOct NovSep
Crude Tankers
Product Tankers
12 months and longer
12 months and longer
Less than 12 months
Less than 12 months
MR1MR2
Suezmax Aframax LR2
LR1
VLCC
Jan Feb AugJunApr JulMayMar DecOct NovSep
1yr TC ECO ratesMillion of
N° of Tanker TCs in 2020
Jan Feb AugJunApr JulMayMar DecOct NovSep
MR1MR2
Suezmax Aframax LR2
LR1
VLCC
0
10
20
30
40
50
60
70
80
90
0
20
40
60
80
100
120
140
160
Crude Tankers
Product Tankers
12 months and longer
12 months and longer
Less than 12 months
Less than 12 months
Jan Feb AugJunApr JulMayMar DecOct NovSep
Monthly number of reported Time Charter fixtures in 2020
‘It is easier to die of one's contradictions than to live them.’ - Albert Camus.
Contradiction is certainly the key word that characterized 2020. As Albert Camus wrote “it is easier to die of one’s contradictions than to live them”. In 2020, the tanker market presented multiple contradictions to Owners resulting in a variety of different effects.
Tanker Owners are known for their capacity to resist and adapt to black swans, but last year was especially challenging due to their proliferation. Despite arriving en masse, they rapidly flew away leaving the market to face its contradictions and realign itself to shifting underlying factors.
In 2020, unexpected events propelled the tanker market to new heights. Whilst not all these individual events would have a positive effect on the market, the combination of Covid, the reduction in global oil demand, and the eruption of an oil price war triggered a temporary massive increase in floating storage requirements. Accordingly, chartering rates and in turn asset values received a large boost over the first part of the year. However, the positive impact of the aforementioned factors eventually waned and by late summer, rates and values had moved significantly lower.
Nevertheless, employment options remained strong for all the different age categories and consequently scrapping activity remained at very weak levels across the year.
Shipbreaking activity was affected by travel restrictions and difficulties in effecting crew changes. Meanwhile, there remained plenty of decent employment prospects for older tankers during the year, therefore very few units reached scrap yards. While there were almost no sales for demolition between March and June, scrap prices for tankers fluctuated between $310 to $420/ldt during the year.
New orders slipped by about 9% last year as only 122 units were contracted compared with 134 in 2019. However, orders were quite stable for larger tonnage. Both VLCCs (44 versus 39 ordered in 2019) and Suezmaxes (39 against 38 in 2019) posted year-on-year increases. Meanwhile, orders for Aframaxes and LR2s dropped to 39 from 56 in
76 77
TANKERSECOND HAND MARKET
Picture: ENERGY APOLLO , 49,812 dwt, delivered in 2020 by STX O&SB Jinhae (Republic of Korea) to Golden Energy.
For the fourth year in a row the number of transactions for further trading increased by more than 20% with about 69 more transactions reported than in 2019. With a boiling charter market, many transactions took place during the first 4 months of the year, driving prices up and motivating more owners to consider selling their vessels. During this initial period, and compared with 2019 when older units were sold for slightly above their scrap value, Sellers achieved a substantial premium to demolition when selling for further trading.
In the last six months of 2020, activity started to weaken in tandem with a softening charter market and falling asset values. The softening in prices at first brought a reduction in the number of transactions. However, eventually Buyers and Sellers price ideas moved closer and the second half of the year registered even more activity than the first.
S&P activity (vessels for further trading)
Vessel value changes from January 2020 to December 2020
Re-sale 5 years 10 years 15 years
VLCC -16.04% -15.46% -14.85% -19.18%
Suezmax -15.94% -16.98% -17.81% -20.83%
Aframax & LR2 -8.04% -15.06% -14.67% -27.27%
Panamax & LR1 -10.11% -12.50% -7.89% -4.17%
N° of Ships 2015 2016 2017 2018 2019 2020
VLCC 55 28 48 48 59 105
Suezmax 38 19 29 28 41 44
Aframax & LR2 52 39 42 66 76 95
Panamax & LR1 18 8 12 20 33 24
There was a VLCC bonanza in 2020 in terms of units sold with 77% more transactions reported than 2019, leading to
a record 105 VLCCs changing hands
The evolution of second-hand prices in 2020 can be split into two parts. During the first months of the year, the prevailing upward trend continued, propelling values higher for all the age segments and in particular, older units.
Thereafter, prices gradually registered a steady downturn that accelerated towards year-end. For example, VLCCs lost over 16% in value, Suezmaxes almost 18%, Aframaxes and LR2s about 16% and Panamaxes and LR1s about 8,5%. A floor in prices for the oldest vessels was created in effect by strong demolition prices that prevented vintage tonnage prices from tumbling further.
New orders 2015 to 2020
SECOND HAND MARKET
VLCC
There was a VLCC bonanza in 2020 in terms of units sold with 77% more transactions than 2019 which led to a record 105 VLCCs changing hands. These sales were fragmented among different age segments with some vintage vessels attracting more interest than others.
Transaction volumes for ships younger than 5 years increased significantly to a total of 22 reported sales against the 7 transactions registered in 2019. Most of these took place in the first part of the year. To illustrate the above, one can recall that in January 2020 the M/T Lady and M/T Kiwi (DAEWOO 2020-built) sold for $105/106 million each. For vessels aged between 9 and 12 years old there were 17 transactions. The most active vintage was for ships of 15 to 20 years where we noticed no fewer than 61 transactions. At the beginning of the year, 44 VLCCs were expected to hit the water, but in the end only 37 units were delivered. According to the orderbook at end-December which stood at 86 units, 40 ships should theoretically hit the water in 2021. Meanwhile, one unit was scrapped last year.
Units sold for scrap per year
N° of Ships 2015 2016 2017 2018 2019 2020
VLCC 64 15 58 44 39 44
Suezmax 62 20 28 22 38 39
Aframax & LR2 109 19 37 28 56 39
Panamax & LR1 33 3 8 8 1 0
$m
2020
10
20
30
40
50
60
70
80
90
100
0
2011 2012 2013 2014 2015 2016 2017 2018 2019
VLCC 5 years old Suezmax 5 years old
Aframax 5 years old Panamax 5 years old
Tanker second-hand prices
$m
2014 2015 2016 2017 2018
Tanker second hand prices
2020
Panamax 5 years old Suezmax 5 years old
VLCC 5 years old Aframax 5 years old
2011 2012 2013
2019. Nevertheless, at the end of 2020 more enquiries were being received by the shipyards. Considering our expectations of increased scrapping activity, there is an expectation for newbuild prices to firm in 2021.
2019
BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021
N° of Ships 2015 2016 2017 2018 2019 2020
VLCC 1 2 16 32 11 2
Suezmax 1 1 14 23 8 5
Aframax & LR2 3 9 31 45 5 11
Panamax & LR1 8 3 8 10 6 3
TANKERSECOND HAND MARKET
TANKERSECOND HAND MARKET
78 79Picture: MONJASA SERVER , 9,165 dwt, delivered in 2009 by Zhejiang Dongfang (China), operated by Monjasa.
Suezmax The Suezmax market registered a slight increase but this was not to the same magnitude as for the VLCCs. A total of 44 Suezmaxes were sold for further trading. The age segmentation reflected the same dynamics as for the VLCCs with 7 transactions for units younger than 5 years old.
Most of these transactions were sale and leasebacks, such as the Zeynep and Ayse C (both 158,000 dwt, 2020-built by Hyundai Heavy) which were sold in August for $63.5 million each with 10 years bareboat back. Only 3 vessels were sold which were between 5 and 15 years of age.
Buyers’ attention was focused on vessels between 15 and 20 years old. Accordingly, a total of 27 transactions were executed. Given this high demand, several major shipowners took the opportunity to offload some of their older tonnage, such as Avin International which sold 3 of its 2000-built Suezmaxes, and Sovcomflot who offloaded 2 of their early 2000-built vessels.
Surprisingly, 7 vessels built in the 90s were also sold for further trading, reflecting last year’s unusual dynamics.
The Suezmax fleet saw 30 units delivered in 2020 (versus an end-2019 forecast for 34 vessels) while only 5 units were scrapped. By end-2020, the total Suezmax orderbook stood at 81 units, with 35 of these expected to hit the water in 2021.
Aframax/LR2 and Panamax/LR1 Mirroring the bigger sizes, in 2020, activity for Aframax and LR2s increased significantly with 95 transactions reported versus 76 in 2019. Activity was concentrated on older tonnage (10 years+) with few instances of modern units changing hands. Indeed, only 5 transactions involved a vessel younger than 5 years old. These included one transaction for sale and leaseback with International Andromeda selling their 2020 Daehan-built unit to clients of ICBC Financial Leasing.
No less than 23 vessels aged between 8 and 12 years old were sold. Among those included several units linked to the Xihe Holdings and Rizzo Bottiglieri de Carlini Bankruptcies. The former were purchased by various buyers while the latter were taken by KKR/Pillarstone and in fine Premuda.
The majority of sales (54 units) in the segment involved vessels of 15 years and older. Major tanker Owners decided to take advantage of a favorable market to offload their older units amid much interest from Buyers the far east, including Indonesia and Vietnam.
Out of the 27 Aframaxes (including LR2s) that we were expected to be delivered during 2020, only 21 hit the water. In 2021, we should see another 69 vessels delivered while the total orderbook stood at 116 units as of late December 2020.
As much as we see a ray of light, the question remains:
‘is the storm really over’?
Panamax tanker sales fell to 24 transactions in 2020. If it wasn’t for the sale of the UACC fleet to Georgiopoulos which included four New Times 73,000 dwt units built in 2009 and 2008, the vessels sold would have been of only 14 years or older. On the older side, Eletson Corp. was an active Seller, disposing of 4 of their units at the beginning of the year, of which, 2 went to Union Maritime. An en-bloc deal involving Nord Group saw four units built by Hyundai in 2004 being sold to Middle Eastern buyers for $10.25 million each.
In the Panamax (including LR1s) fleet, we saw 8 vessels delivered across 2020 against an anticipated number of 11 units as of 31 December 2020. The total orderbook at end-2020 stood at 6 units, of which 5 are due in 2021.
MR1 and MR2MR2s faced the same trend as the crude tanker market last year. Prices increased over the first four months of the year before cooling down to lose more than 13% year on year as per the BSPA index, moving from $29.62 million to $25.71 million.
The total number of transactions for further trading dropped from a strong 197 in 2019 to a meagre 116 in 2020. Only 13 units below 5 years old switched hands. In the 5-10 years old segment, there was a healthy total of 30 transactions reported with a significant number of these consisting of en-bloc operations. In the 10-15 years old segment there were 26 sales, in line with the previous year. Finally, the lion's share of deals involved older vessels, with 48 transactions reported.
No less than 15% of MR2 secondhand sales were accounted for by the en-bloc deal of UACC selling to clients of Georgiopoulos. Several transactions for modern tonnage were linked to refinancing operations. Older vessels were mainly sold by Western Owners to Owners in the Middle East and Far East with the tonnage subsequently deployed for local trades.
In the newbuilding market, 69 MR2s were ordered during 2020, and 72 units were delivered against the initial expectation of 75. The total orderbook remains high with 152 units, of which 106 are expected to be delivered In 2021. Only 11 units were reported sold for demolition last year.
S&P activity in the MR1 segment has again been limited. We registered 51 transactions during the year and only five of them involved modern tonnage. More than half of the sales were in the 10 to 15 years old segment. To complete the picture, 19 units older than 15 years old were sold, mainly to Chinese Buyers.
Similar to 2019, last year saw no MR1s ordered. This leaves the orderbook with only two units to be delivered in 2021. Meanwhile, 10 MR1s were reported sold for demolition.
OBO There was basically no S&P activity for the OBO fleet. New additions were limited to the delivery of two 54,000 Dwt Cleanbu vessels from Yangzijiang Shipbuilding to Klaveness. Otherwise, the 126,958 dwt, 1983 US-built Apollo Spirit was sold for recycling to Turkish Buyers. As of December 2020, the orderbook remains very limited with 3 vessels on order, all expected to be delivered in 2021.
S&P outlook for 2021
2020 was a storm combining different factors, with favorable and contrary winds. We have navigated through this unpredictable year and now the question is what is awaiting us after the storm?
2021 will be a different year. There are expectations for it to bring some tranquility and stability with the hope of solving the global Covid-19 pandemic.
The solution is not going to be a magic spell that will return things to their previous state. Already it is possible to see that the logistical operation of manufacturing and distributing vaccines is taking time and for as long as this situation persists, the demand for clean products and crude oil will be affected.
President Biden’s inauguration and the transition to a new US administration might help to stabilize some aspects of international tanker trades, but overall post-Covid adjustments will likely only accelerate from mid-2021 onwards. Therefore, Owners will need to be patient and wait for global oil demand to fully recover.
With the combination of higher recycling prices from shipbreakers (standing well above 400 $/ldt in early-2021) and persistently low spot and time charter rates mainly affecting the oldest units, there is a strong expectation that a big chunk of the older fleet will have to exit the market. Therefore, as soon as vintage vessels are due for a special survey or dry docking, Owners will have a tough call to make.
However, some hope of rebalancing and equilibrium is indicated by the increasing prices of new ships. By early 2021, steel prices had increased almost 17% year-on-year. Extra yard costs combined with a weaker US Dollar will lead to an increase in newbuilding prices. Owners will also need to face unanswered questions when deciding on their main engines. The fear to contract a “maybe soon to be obsolete” vessel in terms of propulsion will be a common theme over the months to come.
Therefore, as much as we see a ray of light, the question remains, ‘is the storm really over’?
BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021
