Tanker Trade Shift Could Be Structural

The tanker market seems to be going through a structural change in cargo flows, with Russian oil now being, almost exclusively sold to China, India and Southeast Asia, while Europe’s imports have fallen to just 3%. In its latest weekly report, shipbroker Xclusiv said that “opening the conversation about seaborne oil trade, it must be taken into consideration the significant switch of the trade routes and the increase of tonne miles that Western sanctions have created. For example, before the Russian invasion of Ukraine, the EU and Asia were responsible for almost 99% of the Russian crude oil seaborne exports. Now Asian countries are the biggest crude oil importer from Russia, importing about 93% of the Russian crude oil seaborne exports, while European imports of Russian crude oil have dropped to only 3%. The same thing is observed in the Russian seaborne oil products exports, with Asian countries accounting for about 50% of them, when in Jan 2022 Asian countries were responsible for only 10.3% of the seaborne oil products exports from Russia. Western sanctions against Russia coincided with the end of the pandemic, the end of lockdowns and the restart of air travel, facts that have boosted oil demand globally and helped oil demand recovery”.

According to Xclusiv, “more specifically, tracking the Asian oil demand recovery path, we observe that there are three pillars, China, India and Southeast Asia. China has seen a huge rebound from last years decline of almost half million barrels per day and it is mainly supported by Russian and Middle eastern imports. Inflows of Russian crude to China slumped 23.5% in April to 1.74 million b/d from the record levels in March, according to General Administration of Customs data, as more cargoes from the OPEC+ supplier were drawn to India. Seaborne Russian ESPO Blend crude, a longstanding favourite among China’s private refiners, is starting to attract buyers in India, with talk of multiple import deals being sealed by both Indian private and state-run refiners already lifting premiums for the grade.

India’s oil demand has already reached 2019 levels since the last months of 2022. On the other hand, Southeast Asia is still struggling to reach 2019 levels, despite sluggish economic growth. The recovery of tourism and airline industry from the pandemic slowdown has boosted the whole region and therefore the oil product demand. China’s fuel imports hit a record high in May, but traders estimate that June’s imports may fall as lengthy wait times at customs and poor margins prompt refiners to reduce capacity or otherwise keep run rates low”.

Meanwhile, according to the shipbroker “on the demolition market, the ongoing economic crisis in Pakistan has caused severe economic challenges as the country’s foreign reserves run low, creating difficulties with issuing of letters of credit, which has blocked local scrap yards from working. Following this, Bangladesh has also pointed out a dollar shortage which may add more turmoil in the demolition market. Since the beginning of 2023, a total of 96 ships (on dry bulk, tanker, gas and container sectors) have been demolished, almost the same level compared to the similar period of 2022. However, as the dynamics of freight markets have been changed, the trend of demo has also reformed. In other words, on the Dry bulk and Container market we have witnessed a significant increase in the number of vessels went for scrap, as 36 and 32 vessels have been demolished respectively y-t-d, while during the same period of 2022, a total of 12 bulk carrier and no Container were scrapped. Furthermore, the gas market has also witnessed an increase in the vessels which broken up, as of today a total of 9 vessels have been demolished, 3 times up compared to the same period of 2022. On the other hand, the tanker market is the only segment which has seen a decrease in the scrapped vessels, with a total of 19 ships having went to scrapyards y-t-d, a decrease of 76% compared to the first 5 months of 2022. Prices in the main demo areas, such as Pakistan, India, Bangladesh and Turkey have gone south, with India, Bangladesh and Turkey having decreased around 14%, 12% and 11% accordingly compared to May 2022 prices, while in Pakistan demo prices have plunged around 22%. By 2033, the global scrap steel market is expected to grow, from 655 million tonnes to 1 050 million tonnes, according to market analysts. Steel scrap demand could be boosted by increased steelmaking raw material demand from fast-growing and emerging economies such as China, India, and Brazil. The main key factors for the high demand for steel scrap are the significant reduction of CO2 emissions by using recycling scrap, and also the amount of metal required to support global steel production and supply, which in turn determines the choice of furnace, the availability of domestic scrap and the demand for scrap metal. The demand for steel scrap increase will give a fresh boost to the demo prices to move higher as this will try to temp shipowners to scrap their older units”, Xclusiv concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide