VLCC Owners Rejoice Ahead of Posidonia, While Shipyards Are Looking for More Business

While Athens is in the spotlight of the global shipping community this week, with the bi-annual international gathering of Posidonia taking place, owners of VLCCs, many of which are indeed Greeks, are able to smile more, as a result of improved market sentiment, despite the fact that it has not translated, yet, to higher freight rates. In its latest weekly report, shipbroker Affinity Research noted that “with summer practically at the doorstep, trade flows pick up in line with traditional seasonality. VLCC volumes experienced a great week in MEG/East from various charterers, although Unipec was the most prominent. Rates, however, failed to show any strong trends. Formosa, for example, took an older unit at 265 x WS 39.4, while HMM paid 270 x WS 44 for similar tonnage. On modern ships, on the other hand, fixtures are coming out close to the BDTI TD3C average – currently at WS 50, although charterers and owners are in slightly different places with where to value deals”.

According to Affinity, “Unipec’s busy period and strict regulations in fixing ships will ensure that premium rates go for the best approved vessels. Some charterers have been able to circumvent the thresholds set by the market’s more prominent players, but this is getting increasingly tougher. All in all, we believe rates in WAF and MEG are slightly inflated, and activity will determine whether this holds throughout the week. Nevertheless, given the expected increase in volume as the warmer months draws closer, any hope for a price spike won’t last very long. Suezmaxes have experienced a slower week, with West Africa markets correcting downwards at a rather aggressive pace”. The London-based shipbroker added that “transatlantic ballasters are inevitably distracted by local business, with arbitrage activity busy and paying up. Gibraltar positions, on the other hand, are unwilling to commit to a ballast in either direction, given limited certainty on the market’s direction. The market’s cap can be attributed mainly to the busy VLCC activity between Angola/China, which naturally decreases Suezmax volumes”.

Meanwhile, in the newbuilding market, Affinity commented that “a long time ago, in a galaxy far, far, away, the shipyards used to look forward to Posidonia. Not only was it an opportunity for top management to get out of the office, get a bit of sunshine and spend time being courted by shipowners on yachts and at parties but, they would always come home with a briefcase full of signed contracts and promises of more to come. Unfortunately for the yards, that’s simply no longer the case and yard Presidents will be travelling more in hope than expectation this week. 2018 is probably not going to be as miserable for the yards as it was in 2016 when the shipbuilding market was just about to hit the bottom of its worst recession in a generation but, they’re likely to find the shipowners’ generosity and appetite for new business still significantly less than in the glory years. With much of the Greek owning community exposed to the negative cash flow of the crude market, the shipyards will undoubtedly find the shipbuilding market substantially cooler than they would hope. Whilst there’s been a surprising amount of crude newbuilding in spite of the weak freight market, the traditional Greek owners have been conspicuously absent so far this year – partly because, with impeccable timing, those that could already have moved last year when VLCC prices were around $80mill so are not really interested at over $90mill today. And, partly, the steady cash drain from trading has corroded sentiment to the extent that newbuilding looks to many like an unnecessary luxury even if a good investment. As a result, what activity there has been this year on crude has been dominated by ‘new’ money not exposed to the current freight market or by ‘industrial’ users who are very much enjoying it! For example, it’s been reported this week that Vitol have contracted 2 option 2 VLCCs at HHI”, the shipbroker said.

“That’s not to say that nothing will happen at Posidonia. There will, of course, be the usual rounds of meetings and probably a few rogue contract / LOI signings as part of the festivities as buyers and sellers take advantage of the sunshine and each other to conclude on-going negotiations. But, this year, we expect Posidonia to be dominated more by discussion of the upcoming regulatory challenges rather than new business with the debate about scrubbers, ultra-low sulphur fuels and LNG DF continuing to rage. The yards will obviously be looking to push the advantages of both scrubbers and dual fuel (both of which work best with NB) but we suspect that they may meet with a sceptical audience as the Greek shipowning community seems to be mostly favouring the ‘do as little as possible as late as possible’ regulatory model and waiting for more clarity before committing to any post 2020 additional CAPEX. Traditionally, this has worked very well with no obvious first-mover advantage in the past. But, with the biggest potential benefits of the new fuel regulations being in early 2020 when the HFO / ULSFO spread is likely to be at its biggest, our feeling is, with scrubbers at least, the early bird will catch the worm”, Affinity concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide