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Shipowners find newbuild prices irresistible: Gibson

05 May 2017 22:38 (+01:00 GMT)
Shipowners find newbuild prices irresistible: Gibson

New York, 5 May (Argus) — Declining newbuild prices are stimulating a rise in newbuild orders in the Very Large Crude Carrier (VLCC) segment, threatening to delay a rebound in rates.

Restrained orderbooks brought VLCC newbuild prices down from about $95mn for a vessel at the start of 2016 to just above $80mn in May 2017, according to data from shipbroker Gibson. Depleted orderbooks and financial challenges are forcing shipbuilders to aggressively compete, driving prices to these levels, said the shipbroker.

Some shipping analysts and shipowners are worried that tanker owners are now placing orders with expectations of a market upturn, despite clear losses in today's tanker rate environment, and with no clear indication when rates will recover.

"At one year VLCC time charter rates of $25,000/d, they would be operating at a loss. [Ordering new VLCCs] just does not make economic sense with today's rates," said Deutsche Bank analyst Amit Mehrotra. Illustrating the decline, the Argus daily Dirty Mideast Gulf-Asia Pacific 270kt rate averaged $10.45/t in the first four months of 2017, a 16pc drop on the year, and a 30pc decrease from the same period in 2015.

But some shipowners, expecting longer construction periods, are betting that placing orders now will put them in a favorable position to reap the benefits of a stronger market.

Access to new finance remains highly restricted as it is challenging to justify more investment into a struggling industry, allowing only shipowners financially well positioned to take advantage of these prices, said Gibson. But Mehrotra questioned the extent of the restrictions on new capital.

"Anyone who tells you there is no capital to order is wrong. The irony is that capital is always available at the worst time, and vice versa. That dynamic will always haunt the industry," said Mehrotra.

The industry is already seeing a rush in ship orders. As of May 2017, about 30 VLCC orders have been confirmed, compared to just 13 orders in the entire 2016 calendar year, said Gibson. Norwegian shipping magnate Jon Fredriksen recently placed two firm orders with two options for VLCC tankers at Hyundai Samho shipyard for just under $80mn each, said Mehrotra.

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