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Dry Bulk market |
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| Tanker market | |
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| Containership market | |
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| LNG market | |
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| Forecast track record | |
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Tanker Market Highlights |
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After soaring in the final months of 2007, tanker freight rates remained strong in early 2008. Although they fell back relative to their stunningly high December peaks, average spot rates on all of our benchmark routes actually improved in the first quarter relative to the previous quarter. Crude tanker spot earnings remained quite strong in the first quarter of 2008. After averaging $82,000 per day in the fourth quarter of 2007, VLCC earnings on our benchmark AG/East route averaged $96,000 per day in the first three months of 2008. Suezmax and Aframax rates also improved from their fourth quarter averages. Specifically, Suezmax spot rates on the West Africa/U.S. moved up from $50,000 per day in late 2007 to $54,000 per day in the first quarter, while Aframax earnings on the Carib/U.S. route increased from $33,000 per day in late 2007 to $38,000 per day in the first quarter.In April, tanker earnings turned in mixed results. VLCC rates dipped to around $50,000 per day by the middle of the month but climbed back above $100,000 per day by month’s end. Suezmax rates were steady in early April but shot up to $115,000 per day mid month before settling back near $80,000 per day by month’s end. On the other hand, Aframax earnings on our benchmark route fell back towards $30,000 per day by the end of April. Meanwhile, secondhand prices in all crude tanker segments continued to rise in the first quarter. We estimate that the price of a 5 year-old VLCC increased from $130 million in the fourth quarter to $138 million in the first quarter. Likewise, the price of a 5 year-old Suezmax moved up from$92 million in the fourth quarter to $96 million in the first quarter, and the price of a similar-age Aframax rose from $68 million to $70 million. Although the product tanker market did not share in the dramatic highs that characterized crude tanker spot rates in late 2007 and the first quarter of 2008, we did see an upturn in this segment. Earnings on our benchmark Carib/US route increased by 26% over the period, rising from $15,000 per day to $19,000 per day. The gain did not carry over to the period charter market, as we estimate that one–year time charter rates for a 40,000 dwt vessel held steady at $21,000 per day.However, in the second half of April, product tanker earnings on our benchmark route shot up to $30,000 per day, their highest level in nearly a year. Product tanker secondhand values rose only marginally from the final quarter of 2007 to the first quarter of 2008. We estimate that the price of a 5 year-old ship increased from $47.5 million in the fourth quarter to $48 million in early 2008. Meanwhile, tanker newbuilding prices continued to reach new highs during the first quarter of 2008, although their gains were relatively small, with most vessels seeing increases of about 2% relative to the fourth quarter. We estimate that the contract price of our benchmark VLCC rose from $140 million in the fourth quarter to $143 million in the first quarter. Over the past year, tanker newbuilding prices have increased by about 15%.After falling to just over 90% in the third quarter of 2007, crude tanker fleet utilization has rebounded sharply, rising to an estimated 96% in the first quarter of 2008, its highest level in two years. Crude tanker demand has soared by an estimated 7% over just the past six months, while the fleet has grown by only 0.5% during the same period. We estimate that roughly half of the growth in tanker demand came from a surge in trade demand, as OPEC opened up the taps beginning in the fourth quarter of 2007 and continuing into early 2008, resulting in a significant counter-seasonal worldwide stock-build during the first quarter. OPEC output climbed from 31 mbd in the third quarter to 32.2 mbd by February, before disruptions in Nigeria sent the cartel’s production down slightly in March. Virtually all of the increase in global crude trade over the past six months has been generated by Asia, with China, Japan, and India all seeing a significant jump in crude imports over this period.Compared to a year ago, Chinese crude imports rose by 18% in early 2008, with supplies from the Middle East and Africa making up most of the gain. Meanwhile, Chinese product imports have also been strong, rising by 14% over the past year. Japanese crude imports have also been increasing recently, as continued problems at the nation’s nuclear power plants have led to greater oil use, with imports up 6% from a year ago. Meanwhile, we estimate that crude imports into the rest of Asia have risen by 4% over the past year, fueled primarily by higher crude shipments to Indian refineries. Increased long-haul shipments from Latin America to India and other Asian countries have also been seen in recent months, helping to boost tonne-mile demand.In contrast to the recent strength in Asia, North American oil imports have been weak recently, falling over the past six months and basically flat relative to their year-earlier level. The weak U.S. economy and high oil prices have taken a toll on North American oil demand, which fell by 2% in the first quarter of 2008. European oil imports were also down modestly over the past six months due to seasonal factors, though they were up by 3% compared to a year ago, as the region’s oil demand has shown surprisingly strong growth recently, while North Sea output has been declining steadily. In addition to robust trade growth, we estimate that about half of the increase in tanker and combi demand growth during the past six months has come from a shift of combination carriers into dry bulk trades and from reduced fleet productivity. Much of the decrease in fleet productivity was seasonal, due to delays in the Bosporus during the winter months, but we also estimate that idle time between cargoes for single-hull tankers has gone up in recent months.Turning to supply-side developments, the tanker and combi fleet expanded by less than 1% in the first quarter of 2008 relative to the previous quarter. Growth has been concentrated in the product tanker fleet, which has expanded by 5% over the past six months, while the crude tanker fleet has grown by just 0.5% during this period, with the VLCC fleet actually shrinking since the third quarter of 2007. Over the past year, the product tanker fleet has expanded by 9%, compared with 5% growth in the crude tanker fleet. Tanker deliveries dipped in the first quarter, totaling 6.2 million dwt, with product tankers making up more than a third of the total. At the same time, tanker removals accelerated, totaling 3.8 million dwt in the first quarter. Most of the removals consisted of single-hull VLCCs that were sold for conversion to bulkers. Meanwhile, tanker ordering activity slowed in the first quarter of 2008, but at 9 million dwt it remained high by historical standards. VLCCs made up the majority of the new orders. The tanker and combi orderbook rose to 163 million dwt in the first quarter, representing 41% of the existing fleet. 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