Prices for newbuild oil tankers on the rise

Prices for newbuild crude and oil product tankers are beginning to rise, with demand boosted by strong freight rates, a limited orderbook, an ageing fleet and challenges around securing financing for secondhand ships.

Prices for new very large crude carriers (VLCCs) and Suezmaxes are over 4pc higher on the year, while newbuild Medium Range (MR) tanker prices are up over 8pc, according to shipbroker Allied.

Despite a dramatic rise in freight rates and secondhand tanker prices since the start of the war in Ukraine, the global oil tanker orderbook has remained at historically low levels, weighed down by limited shipyard capacity, high newbuilding prices and uncertainty around the outlook for marine fuels in light of tighter environmental regulations, according to shipbroker Poten & Partners.

But the low orderbook, combined with an ageing fleet, is beginning to give shipowners confidence about a sustained period of higher earnings over the next few years. Furthermore, prices for secondhand vessels have been supported by the potential for considerable profits from redirected Russian trade flows, encouraging traditional shipowners to offload their older vessels to new market entrants. "Now many owners are sitting on a growing pile of cash, and they are evaluating what to do next," Poten said.

While newbuild ships are expensive and delivery times remain relatively long, newbuilding slots may become more readily available as shipyards receive less container and LNG orders, the broker said.

Financing is another factor that could impact decision-making among shipowners. Rising interest rates and a shrinking number of banks interested in traditional ship finance have already made it more difficult and more expensive to finance purchases of secondhand ships with a mortgage, but funds to finance newbuildings are more accessible, in particular shipyard credit in combination with funding from Chinese and Korean export-import banks, according to Poten.

Several MRs, Long Range 2s (LR2s) and Suezmaxes have been ordered this year, and there is also an uptick in orders for new LNG or dual-fuel vessels, although the numbers so far remain modest.

By Matthew Mitchell