It has recently been reported that four Chinese state-owned shipping companies intend to form a VLCC pool that will comprise 50 vessels by 2020. Reports that DOSCO could soon order 10 VLCCs give credence to this claim. The idea of creating such a pool has not been met by all with optimism, but it does draw attention to the potential for further expansion of China’s VLCC fleet. In fact, Beijing is keen to encourage increased  transportation of China’s oil imports by domestically-owned ships.
Voluminous Voyages
Chinese oil demand has risen strongly in recent years. China’s seaborne crude oil imports are projected to total 259mt this year, representing growth of 13% y-o-y, and 58% compared to 2008. The vast majority of China’s imports (91% in 1H 2012) are shipped on long-haul voyages, principally from the Middle East and the Atlantic, and a considerable proportion of this trade is transported on VLCCs. This has had an impact on deadweight demand; a measure of the volume of dwt required to service available trade, derived from trade flows. As shown on the Graph of the Month, estimated VLCC deadweight demand for Chinese crude imports has risen strongly over the last decade, and increased from 9m dwt in 2003 to an expected 46m dwt in full year 2012.
Supplying Security
Over the same period, the Chinese-owned VLCC fleet has also grown rapidly. At the start of 2003, there was only one VLCC owned by a Chinese company. By 1st September 2012, this number had risen to 54, bringing the total volume of VLCC capacity owned by Chinese companies to 16.2m dwt.
Therefore at current levels, China’s VLCC fleet can theoretically service 35% of the country’s crude imports. Since fleet growth has been significantly faster than import growth, this proportion has increased over time. However, there is still a sizeable gap between VLCC fleet capacity and seaborne imports. The Chinese government is reportedly keen to up the proportion of imports carried by Chinese-flagged tonnage, perhaps to around 60%, as part of the national oil security strategy.
Challenging Choices
To reach this target, it seems as though Chinese owners would have to place a number of new contracts, given that at present there are only 6 Chinese-owned VLCCs on order. Relatively low newbuilding prices could be an incentive, while new orders could also offer support to Chinese shipyards. Indeed, it seems that some VLCC contracts might soon be placed. However, there are other considerations. Oversupply is still a serious problem, so Chinese owners may choose to purchase secondhand ships. Also, according to company reports, many Chinese owners are increasingly recording losses, which could mean that fleet expansion projects become less of a priority in the short-term.
So, there is still some way to go before Chinese-owned ships carry a majority of China’s crude imports. It remains to be seen how many VLCCs will be contracted in the near-term, and whether secondhand purchasing activity picks up. A significant rise in VLCC capacity could lead to further pressure on the market, and so either way, moves by Chinese owners are likely to be watched closely.
























Source: Clarkson Research Services