China could provide boost for VLCCs in the longer term
In its latest weekly analysis, Poten & Partners examined the impact that China’s oil demand growth, together with its massive new refinery additions, could have towards demand for VLCCs. According to Poten, “over the last decade, China’s consumption of oil has grown more rapidly than any other nation. Its lead has single handedly supported incremental demand for VLCCs as it has risen to the second largest consumer of oil in the world. As a result, Chinese oil companies control about 35% of the VLCC market between spot and term charters. While this market share is up significantly over the past decade, it has held steady for the past few years, reflecting what is now perhaps the slowing growth of China’s oil markets and its economy as a whole.
The controlled, slowing pace of China’s economy may suggest that it is past the days of double-digit growth for the foreseeable future. GDP growth was 10.4% in 2010, it is down to 7.7% in 1Q13. Part of the reason for this decline is China’s waning population growth and gradual transformation to a consumer economy. As a result, Chinese oil demand growth has dropped to a more controlled rate of 3.7% a year, according to the International Energy Agency”, the analyst said.
It added that “despite this curtailment in demand growth, China has plans to add another 4.2 mbd of crude refining capacity by 2018. The outlook for refinery capacity suggests that the appetite for VLCCs in China could grow. The best-case tonnage demand scenario could result in 31.3% growth over the next 5 years. Actual refining capacity greatly outpaced 2009 estimates, providing much needed support for VLCC trades. However, given the current prognosis for Chinese demand, it is questionable whether today’s planned refining capacity will actually be built.
The trade routes from West Africa and the Arabian Gulf to China are the busiest routes by a wide margin, accounting for 94% of all seaborne crude imports to the country, using the reported spot market as a proxy. Based on our calculations for VLCC demand, an additional 96 VLCCs could be required to service these trade routes in order to meet planned increases in refinery capacity. If these plans come to fruition, this would obviously provide a significant boost to VLCC demand by essentially doubling transportation requirements.
Although it is hard to identify a trade more suited to large ship tanker demand, China’s growth in share of VLCC demand appears to be all but guaranteed at this stage. VLCC owners should be cautioned to weigh against the potential versus the likely”, Poten concluded.
Meanwhile, in the tanker market this week, Golden Destiny reported that “oversupply outweighs on demand and trends in spot rates are still negative. In AG-USG route, rates fell by 2 points from last week to WS23 at time charter equivalent earnings below zero levels, from WS29 at the end of June 2012. In AG-SPORE and AG-JPN routes, rates fell by 1.5 points to WS41 at time charter equivalent earnings of about $21,000/day, standing at the same levels of June 2012. In WAFR-USG route, rates are flat at WS40 for three consecutive weeks at time charter equivalent earnings of about $19,000/day, from WS45 at the end of June 2012. In WAFR-China route, rates posted also no change from previous week by standing at WS40-$19,200/day, from WS43 at end of June 2012. In the suezmax segment, the West African activity remained on a modest negative trend with decline in fresh fixture activity and rates in
WAFR-USAC route shed by 1.25 points to conclude at WS50-$8,200/day, from WS65 at end June 2012″ the Piraeus-based shipbroker noted.
It addede that “in the aframax segment, Caribbean market kept soft from previous week with
further weakness in rates. In CBS-USG route, rates moved down by 2.5 points to conclude at WS82.5-$7,300/day, from WS95 at end June 2012. In contrast rates in N.SEA-UKC route gained 2 points and moved up to WS87.5-$13,000/day, from WS95 at end June 2012. In the panamax segment, Caribbean market showed also weakness as for aframax vessels. Rates in CBS-USG route, eased 12.5 points to conclude at WS97.5-$4,000/day, which is the lowest level reached since the beginning of the year, compared with WS120 at end June 2012. In the product segment, rates in AG-JPN route for 75,000dwt vessels gained 1.25 points and moved up to WS74.75-$10,100/day, but still floating at record low levels from the beginning of the year compared with WS95-$17,700/day in June 2012. For 55,000dwt vessels, rates in AG-JPN route declined by 5.25 points to WS92.5-$7,400/day, from WS120-$17,200/day at end
June 2012″, the shipbroker’s report concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide