Is the crude oil tanker market dead?

The dry bulk market seems to be bouncing along, the containership market has been trading sideways, the product tanker market seems to keep attracting ever more attention on the back of the shale oil developments in the US and the bringing online of refineries in the Middle East, Indian and Asia, and the crude tanker market has been left for dead.

The truth of the market is that the dynamics of the market, whether for VLCCs, Suezmax or aframax tankers doesn’t seem very inspiring. Smaller quantities of oil will have to be transported in the future with the US less dependable on imports and the Chinese positively discriminating in favor of their own-flagged or –controlled tonnage. No great surprise that asset prices for crude oil tankers have been in a free fall in the last few months, to say the least.

In the last month, there have been a few transactions in the crude tanker market that at the very least are noteworthy. The transactions refer to modern tonnage, newer than ten years of age maximum, vessels coming from top quality shipbuilders and also from sellers / managers / operators with solid credentials, good ‘stables’ as we say in the business.  Also, the buyers were top quality Greek owners with solid track record of picking the bottom of the market, and having made both by operating the vessels and also by playing the simple, old advice of ‘buy low, sell high.’

A couple of the noteworthy transactions: American Eagle Tankers or AET for short (a wholly-owned MISC subsidiary in Malaysia) just sold the VLCC MT „EAGLE VIENNA” built at Hyundai Samho in 2004 to Alpha Tankers (Kanellakis) in Greece for US$ 40 mil. The last comparable transaction in the VLCC market took place at the end of May 2013 for the Mitsui-built and controlled MT „KAIMON II” to interests of Altomare (Greece) at US$ 29 mil. The estimated newbuilding contract of a VLCC is about US$ 90 mil with estimated salvage value of more than US$ 20 mil, and an estimated economic life of 25 yrs.  The steep depreciation line is obvious, but the sale of the MT „EAGLE VIENNA” shows a relative improvement over the sale of the MT „KAIMON II”; also, AET did well on the trade given that their VLCC entrance was backed by multi-year COA to transport heavy oil (coiled VLs) for PDVSA from Venezuela to Singapore for power generation and they have fully recovered their investment.

Also, DSD (Det Stavangerske Dampskibsselskab) of Norway seems to be in a divesting mode of modern, high quality aframax tankers following the charter default of Sanko Shipping: the 2010-built at Sumitomo Heavy aframax MT „STAVANGER BELL” was sold to interests of Eastern Mediterranean Maritime (East-Med controlled by Thanassis Martinos) in Greece at reportedly $31.5 million, and a couple of weeks earlier, same seller and buyers exchanged the 2004-built aframax tanker MT „STAVANGER BAY” at US$ 20 million.  EastMed has a solid reputation as a reference account of spotting market inflection points and buying opportunities. A newbuilding aframax tanker would be priced at US$ 50 million at present, so the level of the pricing and the discount thereof is apparent. Estimated scrap price at present stands at about US$ 7 million.  Of course, aframax rates are at about $13,000 pd with vessel daily operating expenses at US$ 8,000.   No much room for leverage, but definitely cash flows are positive; the vessels are very good quality and under good management, and theoretically 15+ years remaining economic life.

Strangely, neither Alpha Tankers nor EastMed have bothered with the hot product tanker market for acquisitions, and most definitely have not bothered with equally good vessels older than ten years of age.

This is a bifurcated market, and the smart money seem to show the way…

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.

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