Weak Recovery, VLCC Mass Scrapping Amazing

- May 16, 2018-

In the first three months of this year, the number of VLCC dismantling exceeded the sum of three years. In the eyes of shipbrokers, the number of old-age VLCC scrapped so far this year has been “shocking”. Although the aging VLCC dismantles innovative records, it still cannot relieve market pressure.

VLCC mass scrapping "surprisingly"weld overlay flange

By mid-April this year, a total of 21 VLCCs were dismantled, which has already broken the total number of 13 VLCCs dismantled last year. In mid-March, 16 VLCCs were sent for dismantling.

According to VesselsValue data, March was one of the busiest months of VLCC dismantling and more than a dozen ships were sent for dismantling. Since April of this year, only one VLCC has been removed from the fleet.

The brokerage company Gibson reported that 15 VLCCs had been sold for dismantling since March 1818, and this year's dismantling volume has exceeded the total dismantling volume in 2017. In addition, two VLCCs (converted to FSOs and stored oil) were also sold for permanent demolition. According to Gibson data, tankers that are going to be scrapped are becoming younger and younger than oil tankers that were demolished last year. The average age of super-large crude oil vessels scrapped this year is 18.5 years, and the average age of super-large crude oil vessels scrapped last year is 21.5 years. Due to the huge number of these super large crude oil vessels dismantling to India, some logistical and financial bottlenecks were caused.pipe spool

Clarkson reported that cash buyers are beginning to feel the pressure of continuous supply of these large VLCCs and it is becoming more and more difficult to sell them to buyers at the sales price of ‘last deal’. The report said that because these transactions are high-priced transactions, there is a certain amount of financing pressure.

The data shows that in recent days, the price per ton of each vessel can reach up to 460 US dollars, and the shipowners can already get a check payment of nearly 20 million U.S. dollars for the scrapped VLCC. However, banks in India and Bangladesh have begun to impose some restrictions on their financing capacity, which will further increase market pressure.

Ralph Leszczynski, director of the research department of the Italian ship broker Banchero Costa, also said recently that from the perspective of age, an average of 20-30 VLCCs are expected to be dismantled each year in the next five years.

A large number of VLCC dismantling is not enough to ease market pressure

However, the delivery of a large number of newbuildings apparently hindered the rebalancing of supply and demand, because during the same period, the global fleet had to absorb the capacity of 8 new VLCCs.

Gibson expects that there will be more dismantling of old VLCCs in the coming months, but this is not enough to offset the capacity of the 46 VLCCs planned for delivery this year, even if consideration is given to delayed delivery.

In a commentary on the tanker market, Belgian tanker giant Euronav stated that since the second quarter of 2017, about 20-30 VLCCs have returned from idle to the trade fleet because of the turning point in oil prices.

At the same time, 49 VLCCs will join the global fleet at the end of the year, which will further exacerbate excess capacity in the market and put more pressure on operators.

The dismantling and newbuilding prices have been rising for some time in the near future. It is hoped that shipowners will no longer make new ships and dismantle some old ships.

Euronav said: "For the average shipping age since the beginning of the 21st century, the fleet of ultra-large oil tankers is at a mature stage and provides medium-term support." weld overlay elbows

On the demand side, the annual forecast for crude oil has been upgraded and its growth in 2018 has reached 160 million barrels, which is the level of 2016 and 2017.

In terms of prospects, the demand and ton-mile growth of the oil tanker industry is still positive, and the oil supply prospects are also more optimistic. Higher and relatively stable oil prices also contribute to the significant growth of shale oil supply in Brazil, and especially in the United States.

Euronav pointed out: "However, the balance of supply and demand in the oil tanker market needs to take further measures, mainly to dismantle old ships and continue to reduce the number of new ship-building activities before freight rates continue to rise."

According to industry sources, due to the unfavorable start of the VLCC market this year, the lack of recovery of the crude oil transportation market, daily rents have fallen to the lowest level in history, and it is expected that the number of dismantling will also increase significantly this year. The oil tanker market needs to truly realize the balance between supply and demand to scrap more VLCCs.