Spot rates for the notoriously volatile VLCC sector have tumbled by more than 40% since last Friday, with many analysts warning that the six-digit highs experienced over the past month are unlikely to be repeated any time soon.
Latest data from Poten & Partners show VLCCs are trading on average for $60,300 per day, down from the average of over $94,000 seen so far in 2020, and some $45,000 off rates seen as recently as last Friday.
Fearnleys summed up the rapid descent of VLCCs this week, stating in its latest weekly report: “The market takes the stairs up, but the lift coming down”.
Nevertheless, Fearnleys pointed out that earnings remain “pretty good” from a historic perspective and the Norwegian brokerage remains bullish on VLCC prospects for the balance of the year.
Alphatanker, part of AXS Marine, was more cautious in its latest weekly report, published today.
“Although hire rates currently remain healthy, we are starting to see the unwinding of some of the factors which have helped to support rates over the past few months. While sanctions are still in place on VLCCs owned by Cosco Shipping Tanker (Dalian) Co and NITC, the number of tankers engaged in floating storage and those currently being retro-fitted with scrubbers has started to slip,” Alphatanker noted.
Currently, there are 27 VLCCs storing fuel oil in the vicinity of Singapore compared with 31 in early December. Furthermore, Alphatanker information suggests that the units which exited the storage fleet have since re-entered the wider VLCC trading pool. Meanwhile, the number of VLCCs being, or waiting to be retrofitted with scrubbers has dropped by about five units.
Alphatanker maintained that the support to rates is gradually dwindling noting that there are now 116 VLCCs which are out of the wider-VLCC pool compared with 142 in mid-October.
Peter Sand, chief shipping analyst at BIMCO, was also cautious, taking into account the 73 new VLCCs delivered since January last year.
“BIMCO has been clear on the snap of over supply in the crude sector from 2019 spilling into 2020. That’s for the year as such. Short-term, Q1 is set to deliver solid rates, which means anything above $40,000 a day,” Sand told Splash today.
More bullish was Ralph Leszczynski, global head of research at Banchero Costa, who pointed out that tanker rates often soften in Q1.
“We are coming from an exceptionally good Q4. In December, VLCC spot rates were up 90%year-on-year, so it was expected that the falling back to earth is just as steep as the climb we had few months ago,” Leszczynski said.
The Banchero Costa analyst said he remained positive on VLCCs for the next two to three years, citing the modest orderbook, with approximately 70 VLCCs set for delivery through to 2022, and scrapping set to accelerate given the older age profile of the sector.