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NB Tanker Orderbook – Demand Support

May 12, 2023

The previous two years have witnessed a significant slow-down in new tanker contracting by historical standards.  This is largely due to rising new build prices paired with above average lead times for vessel delivery resulting from tight shipyard capacity (LNG/container orders).  In fact, these two variables along with inflation and interest rates are the driving influences in our newbuild pricing model.  As such, we monitor the direction of steel prices and changes to yard capacity regularly to provide visibility on the direction of yard prices. 

Following a major lull in owner contracting, the beginning of the year has witnessed a gradual pickup in activity, primarily at Chinese yards.  Not surprisingly, this reemergence of interest coincides with a change in steel pricing. Recently, China has lifted trade restrictions on Australian coal after more than two years of an unofficial ban.  As a result, we have observed coal prices (one of the key input factors impacting the price of steel) taking a deep dive from US $405/mt in January to a current price of US $166/mt. 

Continued weakness in steel prices, combined with increasing shipyard capacity (for more natural slots), is likely to propel further increases in ordering activity.  In fact, our models point to corrective pricing for new contracts accelerating over the next 6 to 12 months.  However, as projected in our January Tanker Market Outlook, contracting activity has been overwhelmingly skewed to mid-sized tankers (Afra/LR2/Suez) over VLCCs.  While we believe that VLCCs will benefit from a favorable supply side situation in 2024 and 2025, challenges to demand will require owners to manage future fleet growth in order to allow VLCCs to outperform the mid-sized tankers from an investment perspective, the latter which are showing significantly stronger and positive demand side impacts from geopolitical (Russia) developments.

Figure 1: Tanker Orders

Source:  Fred, CME, Yahoo Finance, McQuilling