anker values have surged to decade highs, on the back of strong earnings in the spot market. In its latest weekly report, shipbroker Gibson said that “over the past few years tanker owners have watched containership values surge to unbelievable levels, whilst their own values have struggled against a backdrop of weaker transportation fuel demand following the pandemic. However, gradually recovering oil consumption and the fallout of Russia’s aggression in Ukraine has propelled spot earnings and with that, secondhand values to levels not seen in over a decade. Newbuild prices had already firmed due to tighter yard availability and cost inflation; however, secondhand prices, which are more closely linked to near term spot market developments, only started to gain momentum at the end of last year, partly supported by increased optimism around oil demand and declining orderbook. Long delivery lead times, uncertain regulations and high yard pricing have also made secondhand tonnage a more attractive proposition, given the shorter investment timeline and prompter delivery a secondhand vessel offers. So, what factors might support further rises in values, or is the bubble about to burst?”
Source: Gibson Shipbrokers
According to Gibson, “for context, secondhand (basis 5 years old) MR values faced a downward trend through much of 2020, before stabilising in 2021 and growing impressively from $29 million in December to $34m at the time of writing. In fact, $34m for a 5 year old MR tanker today exceeds the price of a newbuild MR back in January 2021, and overall represents a 17% increase in the last 18 months. Aframaxes have shown even more impressive price rises, with a 5 year old values rising 50% since January 2021 to $51m to exceed newbuilding prices seen in early 2021”.
The shipbroker added that “yet prices could still be driven higher. Clearly, asset values will remain supported whilst the spot markets continue to be exceptionally strong. However, other factors could be equally as impactful. The implementation of a Russian oil embargo and a corresponding Western insurance ban will prevent many owners currently willing to transport Russian oil from doing so. As we move closer to December, it is likely that increased S&P activity will occur for buyers based in Russia, the Middle East and Asia, which will continue to support prices and mark a continuation of a trend already seen since the invasion”.
“Conversely, any easing of sanctions against Iran or Venezuela could have the opposite effect. If sanctions against these countries were to be removed, much of the current fleet servicing these trades could migrate into Russian business – again another trend observed to some extent already. There is also the question as to whether Europe has the resolve to press ahead with its Russian oil embargo and insurance ban at the end of the year, having recently softened current sanctions relating to Russian energy exports. Such an embargo could become even more difficult to enact, if Iranian and Venezuelan barrels remain off the market. Finally, there is the wider macroeconomic picture. Slowing global growth and recessionary fears all have the potential to lower demand for tankers and thus impact asset values and, whilst most major forecasting agencies still predict growth, consumer and business confidence continues to decline”, Gibson noted.
The shipbroker concluded that “ultimately, there is still the potential for further upside in tanker asset values; however, increasingly the downside risk is coming into focus. Owners can take comfort from a low orderbook and be encouraged by the reallocation of trade prompted by Russia’s invasion of Ukraine, yet how they balance this against the broader macroeconomic picture will ultimately depend on their appetite for risk”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide