Page 37: of Maritime Reporter Magazine (June 1998)

THE TANKER MARKET buildings will be required to main- tain the market balance. But the strength in freight rates has mere- ly served to choke off scrapping — as higher incomes allow owners to spend proportionately more on maintaining their vessels, hence extending their trading lives.

The start of 1998 has left the market somewhat delicately poised, as a combination of surg- ing oil production and limited additions to the fleet have main- tained a reasonable balance in the face of economic uncertainty in Asia and a bulging orderbook.

The prospects for the main indi- vidual sectors are discussed below.

Product Tankers

The product tanker market has effectively peaked across a three year period running from 1995 to 1997. Illustrative of the collapse in the market is the fact that time charter equivalent assessments showed earnings of $8,400/day in 1Q98, down from $17,400/day in 1Q97.

While the 1Q98 figure has been aggravated by mild weather and reduced demand in Asia, the fun- damentals have also clearly dete- riorated. A total of 998,000 dwt was recorded in additions to the 10-50,000 dwt sector in 1997, while the deletions amounted to just 380,000 dwt. In addition, the commissioning of a number of refineries in the Asian region has sharply cut the need for refined product imports.

In the first three months of 1998 another 391,000 dwt in deliveries was recorded, and a total of just 87,000 dwt was delet- ed. And scheduled deliveries for the remaining nine months of 1998 amounted to 2.1 millioin dwt. The implications for the fleet are clear: by the end of 1998, the fleet expansion can be expect- ed to register between five and 10 percent. Early indications are that the demand for these vessels will not rise by more than one percent in 1998. Consequently, freight rates are projected to remain under considerable pres- sure. In the first six months of 1999, another one million dwt in additions is scheduled for the fleet and demand is thus almost certain to lag behind supply once again.

Longer term there are two pos- sible scenarios: optimistically a sharp and prolonged downturn in

June, 1998

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Circle 199 on Reader Service Card freight rates will promote vessel scrapping which, combined with delayed refining pro- jects in Asia, may redress the current weak- ness and allow rates to begin to firm again by the end of the decade: pessimisti- cally, weak econom- ic growth, import restrictions in Asia and reluctance to sell vessels for demoli- tion could herald three to four years of depressed freight rates.

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