VLCC asset values may be nearing their peak, says broker

The summer’s strong market for VLCCs has helped lift values for secondhand vessels but prices may be reaching their peak, according to a report from shipbroker EA Gibson.

The average value of a 15 year-old VLCC has increased by approximately $3.5m since the end of June, and by $10m since the start of the year, the London-based firm said.

Frontline sold its VLCC British Purpose (306,307 dwt, built 2000) for a reported $36.6m in June. Two other 15-year-old VLCCs achieved around the same price that month, the report said.

“Earnings from a sustained firm spot market, which have been present for most of the past year, have translated into an increase in VLCC prices by 13.5% (5-year-old) and 55% (15-year-old). Despite a recent decline in spot earnings, asset values continue to be robust as interest in new tankers remains firm and spot earnings are still above the break-even levels,” Gibson said in a new report.

This uptick in secondhand values will, however, limit the number of scrap candidates and will help boost the net growth of the fleet, Gibson said.

However, there remains little scope for improvement and asset values may be nearing their peak, despite being way below 2008 levels, the broker said.

“Newbuilding and secondhand prices have started to converge after a prolonged period of strong earnings, yet a recent dip in spot rates could reverse this trend. With consensus predicting a downwards correction next year, asset values may have limited scope for further improvement, despite the fact that several of the dominant players are being traded at a premium to NAV [net asset value],” the broker stated.

“Second-hand prices could continue to follow a slightly different trend in the short term relative to newbuilding prices as owners are still keen to enter a firm market rapidly. Second-hand VLCCs may therefore appear an attractive investment, but with so much uncertainty in many of the aspects shown above, the future could still be challenging.”

Some 38 VLCCs have been ordered this year to date, compared to 36 during the same period in 2014. The current orderbook now corresponds to 18.4% of the existing fleet, according to Gibsons research.

Holly Birkett

Holly is Splash's Online Editor and correspondent for the UK and Mediterranean. She has been a maritime journalist since 2010, and has written for and edited several trade publications. She is currently studying for membership of the Institute of Chartered Shipbrokers. In 2013, Holly won the Seahorse Club's Social Media Journalist of the Year award. She is currently based in London.
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