The profile of the current ice-class tanker fleet could offer an investment opportunity. Despite their high maintenance costs and short timeframe of premium returns, this class of tankers are slowly aging. According to data cited by Gibson, 68% of the whole ice-class fleet is now over 10 years old. In its latest weekly report, shipbroker Gibson said that “this week, much of Europe has been blanketed in snow as cold weather has spread as far south as the Mediterranean coast. With temperatures across the continent as low as -30C (-22F), now might be the perfect opportunity to talk about the ice class fleet”.
According to Gibson, “perhaps the first thing to mention is the lack of ordering activity in recent years. Most of the recent newbuild investment has gone into Aframax tonnage with a mix of Finnish/Swedish ice class 1A and 1C orders. Last November Sovcomflot (SCF) announced a huge investment in ice class 1A tonnage, ordering six Aframaxes (plus options), at the same time SCF stated their commitment to environmental standards by making them LNG powered. Last month the company announced long term time charter agreements for two of these units. Back in October 2016, Euronav made a rare venture into the newbuildings market by ordering ice class 1C Suezmaxes, with seven year time charter attachments to serve the Quebec refinery to replace some of their older units. Speculative orders appear to be rare, in part due to the higher up-front pricing for expensive kit, so most are already committed to project work”.
The shipbroker added that “ice class tonnage by the nature of its employment is expensive to run and costly to repair and of course only command a premium during the short ice season. Older units, although built to ice class rules, may in fact drop out of these trades into the more conventional markets because of escalating maintenance costs. With this in mind, it is interesting to see that today 72% of the Aframax fleet is over 10 years of age. Applying the same principle to the Handy/MR sector, 70% and the Suezmaxes 78% of the fleet is over 10 years old. To put this into context, 68% of the whole ice class fleet today is over 10 years of age. Analysis of the tanker orderbook shows only a handful of ice class units are currently firm orders, most already with committed employment. With so many units from the mid-2000s heading towards third special survey over the next few years, potentially this niche market could be heading for a shortfall. Forty-three percent of the fleet was built between 2003-2007 (10-15 years of age). Given that ice class tankers spend the greater part of their working lives in the ECAs, the impact of the 2020 sulphur legislation will be limited. However, over the next few years many units will be required to invest in Ballast Water Treatment systems as well as the added expenses associated with working in ice in terms of steel replacement etc. Also, ships now have to comply with the safety part of the Polar Code by their first renewal survey. Many of the older units may require changes to fuel tanks to comply with the code, all this comes at a cost”.
Gibson concluded that “of course, there has to be demand for these specialist vessels. Trading routes are changing across the tanker market and the ice trade is no exception. Vladimir Putin has just issued a statement, vowing to increase traffic tenfold along the Northern Sea Route by 2025. This route will require the highest ice classes, similar to those being deployed for the Yamal LNG project. Another example will be changes in the Baltic trades. A recent announcement by Transneft stated that crude exports from Primorsk are expected to fall after 2018 due to increased exports to the Asian market, primarily China, reducing the volumes shipped from Baltic ports at least for this year. However, product exports through the Baltic are due to grow because of the modernisation Russian refineries and a favourable tax system. Those that operate ice class tonnage have some interesting choices to make over the next few years”.
Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “after all the disruption from last week with Chinese New Year and IP Week Charterers settled down and concentrated on their 2nd decade VLCC enquiry. Even with the greater influx of interest, Owners were unable to capture any potential gains and the market remains firmly on the bottom. Rates to the East hold in the region of low ws 30’s for older units and mid-high ws 30’s for the more modern unit based on 270,000mt. Voyages fixed to the West remain somewhat limited with levels holding at around ws 18 via the Cape on min 280,000mt.
A very active, threetiered market this week. Iran was particularly busy jumping from 140,000mt x ws 32.5 to ws 45 for West discharge, with one Charterer covering 6 stems in 3 days. The non-Iranian market was better supplied and struggled to keep up, with rates only improving marginally from low to mid-20’s for West and low ws 60’s to the East. Basrah Heavy premiums were restored to ws 12.5 points, as one Charterer found themselves with just one ship to pick from.
The week ends on the firmer side so long as volumes continue into endMarch early-April laycans. After a couple of desperately quiet weeks in the AGulf for Aframax Owners, week 9 has finally delivered an improvement in enquiry. However, the backlog of tonnage will take time to clear and with ballasters on the horizon from the East, has prevented Owners to improve rates which sit at 80 x ws 82.5 for Agulf-East”, the shipbroker concluded.
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