[ID] => 9302
[post_author] => 34
[post_date] => 2018-03-07 09:57:14
[post_date_gmt] => 2018-03-07 09:57:14
[post_content] => The chemical tanker market has been going through another of its seemingly endless series of downturns in recent years. It has been ten years now since the financial crises of 2008/9 ripped up trade forecasts that had been confidently predicated on the promise of continued demand growth, driven not least by China and emerging markets in Asia.
The ability of any tanker sector to respond to a changing market is limited not least by the time it takes for market signals to have an influence on the size of the fleet. Contracting for new tonnage takes about two years to deliver capacity into the fleet (perhaps three years when shipyards are busy), by which time the market is likely to have changed. If the contracting owner is lucky, the market may have developed in a predictable way; if unlucky, and the market has taken a nosedive, difficult decisions may have to be made.
Such was the case after the 2008 crash: plenty of orders for new ships placed in the more confident mid-2000s were still to be delivered, yet demand had slumped. There were a number of high-profile casualties in the aftermath – not least Eitzen Chemical – and other tanker operators are still working through the impact of the necessary restructuring.
It has taken a decade for shipowners and analysts to begin to think about a recovery, but we are not there yet. Drewry Shipping Consultants says that global chemical trade volumes grew by just over 4 per cent in 2017, with tonne-mile seaborne trade increasing by nearly 5 per cent.
At the same time, the global chemical-capable tanker fleet expanded by 3.9 per cent compared to 2016. On the face of things, that would indicate a slight tightening in the market that could be expected to be reflected in higher earnings. However, the chemical tanker fleet is a slippery thing to pin down and, in light of a weak market for clean petroleum products (CPP), many product/chemical tankers swung into the easy chemicals and vegoil trades. Drewry estimates that there were 18 per cent more vessels operating in this sector in 2017 than 2016.
“The fleet trading in chemicals has expanded more than demand and will continue to so in 2018, says Hu Qing, Drewry’s lead analyst for chemical shipping. “Apart from the fact that deliveries of new ships will outpace scrapping, it is also the case that the average size of the new vessels scheduled for delivery are larger than the vessels they are replacing. We therefore expect timecharter rates to come under increasing pressure.”
Increasing self-sufficiency in base chemicals in Asian countries is a definite threat to long-haul chemical trades, says Drewry. Overall tonne-mile demand is predicted to increase by just 1.6 per cent this year on the back of dwindling long-haul growth.
Odfjell, one of the leading chemical tanker operators, has a slightly different view. Trade in the core cargoes for chemical tankers – including vegoils and other non-chemical products – rose by an annual average of 3 per cent from 212m tonnes in 2012 to 240m tonnes in 2017, it says. Odfjell expects that growth to accelerate in the near term, averaging 4 per cent per year to hit 266m tonnes in 2020.
Of that 26m tonnes of new exports, the US and the Middle East are forecast to account for some 18m tonnes, with the new trades focusing on methanol (which could support further newbuilding of specialised tankers), ethylene glycol and xylenes, the latter stemming mainly from the Middle East.
Over the same historical period, Odfjell says, the total chemical tanker fleet grew by 33 per cent, from 66m dwt in 2012 to 88m dwt in 2017. Fleet growth has been particularly rapid in the past two years but has focused on IMO II/III product/chemical tankers designed to operate primarily in the CPP sector. The low cost of upgrading product tanker newbuildings to handle easy chemicals and vegoils has encouraged many of the major product tanker operators – several of which are now backed by investment funds – to do so, resulting in a sharp increase in the size of the swing fleet.
Odfjell expects fleet growth to be tempered over the near term, with average annual growth of 3.6 per cent in the core fleet and – importantly – only 1.9 per cent in the swing fleet. Both of those figures are below anticipated levels of demand growth, indicating a move towards a better balance between vessel supply and demand. Should the growth in trade volumes have a disproportionately large element of long-haul trade – as Odfjell thinks likely – then the move back towards balance will be faster, although Odfjell agrees with Drewry that China’s move towards self-sufficiency in some commodity products could impact this outlook.
In summary, Odfjell says it continues to believe that chemical tanker markets will improve towards the end of this year but that no significant improvement can be expected until 2019.
TOO MANY COOKS
In a rational market faced with such conditions, it would be expected that all players would take similar decisions and their combined actions would put the market back towards balance. However, the chemical tanker market remains astonishingly fragmented, as HCB’s annual survey of chemical tanker fleets on the following three pages demonstrates.
It is not just that there are so many different players, they also have divergent interests. There are a handful of major specialised players in the core market, many at least partly in private hands, often led by founding family members. There is another layer of specialised regional players, subject to a smaller selection of market forces, alongside an array of more local operators, many of which have links to domestic downstream interests.
All of these have different financial expectations, as do those (mostly newer) players in the market that are backed by institutional investors. Their behaviour at different points in the market cycle differ, as do their approaches to the investment cycle.
As a result, it seems, for every operator with an eye on leading consolidation in the market – as evidenced most recently by Team Tankers’ planned acquisition of Laurin Maritime and Anglo-Atlantic Steamship – there is another in the throes of divesting assets. The latest example of that is Nordic Shipping, which has over the past year passed on the Crystal Nordic joint venture to Essberger Tankers and offloaded its Herning Shipping subsidiary to a new venture headed by former chemical tanker stalwart Axel C Eitzen.
It is apparent that, however gloomy market conditions are for the market as a whole, there is always a buyer available, if the price is right and the potential returns sufficient to meet current financing demands.
[post_title] => Chemical tankers: Irrational behaviour
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[post_name] => chemical-tankers-irrational-behaviour
[post_modified] => 2018-03-07 09:57:14
[post_modified_gmt] => 2018-03-07 09:57:14
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[guid] => https://www.hcblive.com/?p=9302
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Chemical tankers: Irrational behaviour
The chemical tanker market has yet to fully recover from the 2008 crash but there are still those willing to take a punt on the future