July 2023: Tanker Markets Experience Downturn in Q2 2023, Challenged by Container Shipping Boom

The general sentiment among researchers and analysts indicates that tanker markets have taken a dive in Q2 of 2023, which was predicted by some forecasters in 2022. Historically, due to a bull market, there is a surge in new builds in performing sectors such as containerships which have devoured potential new build slots, possibly at the expense of tankers. Some forecasters had reported the extreme highs in the tanker sector in 2022 as unsustainable through 2023. From a financial viewpoint, tanker owners are certainly not in danger as profits generated in 2022 will dampen any downturns, which are forecasted by some to be short-term.?

The impact of consumer demand must be considered in most shipping sectors, especially the chemical tanker sector. As we have seen in the last three years, the containership sector has benefited from supply chain disruptions which, on a smaller scale, benefit the chemical tanker sector, which is also driven by consumer demand, just-in-time inventory, and industrial growth. Unfortunately, these boom periods in various shipping sectors historically prove non-sustainable over long periods. Owners, however, will build on the back of historically intense performance periods and the availability of financing, as we see in the containership sector presently. The current behavior in the new build market will frustrate tanker owners' attempts at growth due to higher prices and delivery dates for an MR tanker into 2027. The reluctance of tanker owners to build due to the aforementioned reasons and uncertainties about future regulatory requirements will also have a trickle-down effect on service providers, component suppliers, and innovators focused on the tanker sector.

Reduction of export tariffs in Indonesia has led to falling commodity prices for palm oil which have attracted traders for pushing palm oil and chemical tanker tonnage into the Mediterranean, consequently positively impacting the overall freight rates as space tightens.

As we all know, focusing on China's economic health will always be the subject matter in any reporting, whether financial, transportation, political, environmental, or industrial production. China will remain the world's economic engine with unlikely impact from minor skirmishes in the South China Sea with its major trading partner, the Philippines. China's PMI manufacturing data has weakened in the last few months, translating into higher inventory levels for the benchmark construction and manufacturing areas. The outlook remains positive for 2023 for improved consumer demand, increased industrial production, and improvements in the property sector, which contributes to domestic chemical demand. China's chemical imports have fallen 14% YoY however, there is consensus that chemical domestic demand for feedstock will increase in 2H, supporting demand for cargo and freight rates.

The demand for UCO (Used Cooking Oil) is increasing as China exports UCO at all-time highs as demand for biofuel and products continues to surge Record amounts have been imported by Singapore, which creates a positioning opportunity for chemical tankers usually dependent on CPP to Singapore for final voyage positioning in the Middle East or loading Palm Oils from Indonesia. The expansion of the Neste refinery is driving the demand for UCO feedstock in Singapore. Also, UCO exports from China to the US have reached record highs as demand for the feedstock gains strength for increased production of biofuels worldwide. Demand will continue to increase in Europe and the US from China as sustainable aviation fuel mandates grow globally and major oil companies position themselves for a post-carbon world. This is a positive development for chemical tankers as the UCO long-haul trade from China to US and Europe continues to experience increased volumes.