Shipowner Euronav sees freight rate recovery later in 2021 after challenging Q1
6th May 2021 12:56 GMT

Coronavirus restrictions and OPEC+ production cuts were continuing to weigh on tanker markets in the short term, but freight rates were poised to pick up later in the year, shipowner Euronav said May 6.

“Whilst the tapering of OPEC+ production cuts later this month is an encouraging sign, available large crude tonnage remains abundant,” Euronav CEO Hugo de Stoop said in a statement accompanying the company’s first-quarter results.

"We remain confident that the market will recover in the medium term and that is why we took advantage of available low asset prices to make counter-cyclical investments in both the VLCC and Suezmax segments during Q1," he added.

Shipping sources are hopeful freight rates will spike in the second half of 2021 on the back of rising refinery runs, boosted primarily by OPEC output but also by higher US production.

This comes after a difficult Q1 for tanker owners. Average spot rates in Q1 2021 were $14,000/day for VLCCs and $11,500/day for Suezmaxes, compared with $72,750/day and $59,250/day respectively in the same quarter last year, Euronav said.

The comparison for average time-charter rates was less stark. VLCCs averaged $39,500/day and Suezmaxes $29,500/day in Q1 2021, compared with $37,000/day and $30,250/day in Q1 2020.

Increasing bunker expenses put additional pressure on tanker earnings, with owners saying they were hardly covering operational costs. S&P Global Platts data shows delivered 0.5% sulfur fuel oil at Rotterdam averaged $416/mt in Q1 2020 rising to $456/mt in Q1 2021.

VLCC freight rates remained subdued throughout Q1 2021 amid low end-user demand and a slowdown in the unwinding of crude oil stocks. Freight rates on the West Africa-to-East VLCC run averaged $10.43/mt over the quarter, down from a five-year average of $18.82/mt, Platts data showed.

Slow scrappage rates

The weak environment in Q1 had not resulted in a spate of ship recycling, confounding many market watchers including Euronav, the company said.

Scrap prices are at reasonable levels and some tanker fleets have overdue ships to be scrapped. If this goes ahead then freight rates should increase as ship supply reduced, S&P Global Platts Analytics noted.

“Many analysts believe that older tonnage has instead been used for 'illicit trade' that has developed around Iranian and Venezuelan sanctioned cargoes,” Euronav said.

The vessels undertaking this trade have been almost exclusively older tonnage and the effect has been to reduce recycling to 11 VLCCs (1.3% of fleet) and five Suezmaxes (1%), the company said.

“Such trade appears to have been policed less effectively in the past few quarters than previously. The impact has been substantial with potentially 66 VLCCs (54 Iran, 12 Venezuela) and 29 Suezmaxes (20 Iran, 9 Venezuela) involved,” it added.

In respect of newbuilds, there is a trend toward ships that can run on more than one fuel, as the market prepares for climate goals set out by the International Maritime Organization.

The IMO is targeting a 40% reduction in CO2 emissions from the global fleet by 2030 compared with 2008 levels and a 50% reduction in greenhouse gas emissions by 2050. With commercial and regulatory circumstances of the future unclear and with different fuels emerging, such as methanol, ammonia and LNG, many shipowners are hedging their investments by ordering vessels which can run on more than one fuel.

Shipping banks, investors, and regulators are increasing their focus on emissions and compliance and Euronav believes this will lead to a further reduction in older tonnage at some point and drive its exit from the global tanker fleet.

In the VLCC sector, a quarter of the order book is now dual-fuel dominated although 80% of these will not enter the spot market but start with multi-year time charters, Euronav said.

The Suezmax sector has not seen the same level of contracting, with fewer than five newbuilds per quarter in 2020.

Platts ,
6th May 2021 12:56 GMT