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Product Tanker Market Heading for a Solid Recovery

The product tanker market’s fundamentals, both demand and tonnage supply, have been showing signs of steady improvement of late.
In its latest weekly report, shipbroker Allied Shipbroking said that “having entered into the second half of the year, all eyes (on the MR segment) have turned towards the refineries and the anticipation that they will further boost their upcoming production for low sulfur products in order to be ready for the upcoming IMO 2020 regulation. Demand figures have already started to reflect the prospects that were being expressed earlier on in the year, with key players such as China posting significant increases in their trade. According to official sources, the Asian giant exported 5.43 million MT of oil products during June, rising by around 13.5% compared to last year, while total exports in the 1st half of the year surpassed the 32.5 million MT mark (7.3% y-o-y rise)”.

According to Mr. Yiannis Vamvakas, Research Analyst with Allied, “two new refineries began operations during the previous weeks in China, adding more potential to the total production figure and exports for the following months. However, it is worth mentioning that the Chinese government has announced a new batch of export quotas on petroleum products, which reached the 45.29 million MT on annual basis, a figure increased from 43 million MT that was being implemented last year”.

“Meanwhile, positive information has been flowing from the US as well, with EIA data showing that demand for gasoline climbed to record levels of 9.93 million bpd in the last week of June, while combined crude and refined products exported reached an all-time high on weekly basis (676,000 barrels). At the same time, local refineries have started to build inventories of low sulfur fuel so as to be prepared for an uptick in demand. Specifically, stockpiles have risen by 9% compared to last year. In the interim, US East coast supply of gasoline and diesel has been disrupted from the closure of the Philadelphia Energy Solutions refinery due to the fire accident that occurred last month. This is likely to cause improved trade figures, as the US will need to balance this deficit with imports. Forecasts depicting gasoline imports for the US and Canada, from Northwest Europe has reached 1.4 million MT. On the supply side, the total MR fleet (including Handysize product tankers) has recently reached 2,480 units, approximately 1.81% higher compared to the beginning of the year”, Vamvakas said.

Allied’s analyst added that “this is a relatively reasonable rise, as new ordering has remained limited during the year, following the slow new ordering activity noted in the last couple of years. The current orderbook stands at 198 vessels, with 77 of them being anticipated for delivery during this year. The figure has followed a declining trend, boosting confidence amongst owners, with the data showing that the orderbook has decreased by 10.4% compared to the same period in 2018 and 7.2% compared to the beginning of the year. Meanwhile, consistent scrapping has also helped keep a balance, with 23 units being recycled in the year so far, while there are another 219 units that can be considered as potential candidates for demolition (aged more than 20 years old). With the current trend pointing to a more moderate fleet expansion for the rest of the year, demand growth is likely to surpass, at least temporary the supply growth, working in favor of owners. All in all, current supply and demand conditions and forecasts paint a fairly positive picture for the product tanker segment. MR freight rates, despite the most recent slack, have posted an increase of almost 40% compared to the same period in 2018 and as we move forward into the final quarter of the year, it is expected that we will see further improvements take place”, Vamvakas concluded.

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