Recently, relative optimism regarding the product tanker market has become common place, driven by the difference in growth between the product and crude trades. Global seaborne products trade is projected to grow by around 3% y-o-y, compared to crude growth of less than 2% y-o-y in the full year. Furthermore, this optimism has led some to project a spate of ordering by owners looking to exploit the growing products trade.
Declining Despatch
As the Graph of the Month demonstrates, product tanker deliveries have declined over the last three years. From a peak of 4.4m dwt in 1Q2009, deliveries declined to 0.9m dwt in 4Q2011. Furthermore, for the first time in five years, product tanker demand growth is projected to attain near parity with supply growth in full year 2012.
A key underlying fundamental in the products market is the rapid increase in US exports, which have increased by 56% between 2008 and 2012. US exports are projected to generate new demand on some routes, potentially benefitting Medium Range (MR) tankers. In particular, trade volumes on routes from the US to Mexico and South America are projected to increase by 24% y-o-y in full year 2012 to 1.8m bpd. This will generate increased demand for MR tankers, and may encourage investors to order MRs in the near future.
However, downside risks remain. Atlantic trade between the US and Europe, a key MR route, is unlikely to improve with Europe in recession. Furthermore, any increase in US exports to Europe is likely to be transported by vessels currently ballasting back to Europe empty. Finally, as shown by the graph, a total of 6.6m dwt of MR capacity scheduled to be delivered between 2Q2012 and 1Q2015, more than any other product tanker type.
Stand and Deliver
Another option may be Long Range (LR) coated Aframax and Panamax tankers. Indian exports to the US are projected to increase by 13% y-o-y in the full year. The high level of growth in volumes on this route is likely to continue, considering the potential for demand from the US East Coast following the closure of a number of refineries. Owing to its length LR tankers would service this route. Furthermore, the overall Aframax orderbook represents only 8% of the fleet, the lowest of any tanker sector, while deliveries of LR tankers are projected to decline in the year ahead. However, the LR fleet may be bolstered by uncoated tankers competing for dirty products. Thus, owners who invest in LRs risk seeing potential trade volumes decline as uncoated vessels take market share.
Quantifying the Benefits?
Therefore, opportunities in the product tanker market are more complex than previously considered. While product tanker demand as a whole is likely to increase in 2012 and 2013, whether and what owners should order remains difficult to judge. Increasing US product exports may increase MR demand going south, or transatlantic, while US East Coast import requirements may eventually stimulate LR demand. However, in both cases, there may be ways for the existing fleet to accommodate some of the extra demand. What, and when, to order, is as difficult a choice as ever.
Source: Clarksons