The widely-anticipated tanker market recovery in the second half of this year could be derailed as shipowners shy away from recycling old vessels, according to Alphatanker.
Many analysts expect spot earnings of crude and product tankers to rise significantly in the coming months because oil demand recovery remains on track amid vaccine roll-outs across the globe.
But the AXSMarine research unit said it wanted to play “devil’s advocate” and highlighted the downside risk posed by limited scrapping.
Data from shipbrokers BRS shows that 57 tankers totalling 6.5m dwt have been scrapped or sold to be scrapped since the start of the year.
Some tanker experts believe the scrapping volume is constrained by strong appetite for vintage tankers from opaque operators involved in sanctioned trades.
Moreover, Alphatanker estimates only 30 of the tankers listed by BRS have actually been beached.
“Tanker scrapping is the largest potential risk to tanker markets undergoing a modest recovery in the second half of 2021,” Alphatanker said in a note.
“Considering that only around half of the tankers sold for scrapping this year have already reached a breakers yard, we remain concerned that some of this tonnage may ultimately end-up being used for further trading rather than exiting the tonnage pool.”
Alphatanker predicts a total of 94 tankers with 11.5m dwt would be scrapped in 2021, including 37 sold for demolition between July and December.
“We project that scrapping interest will be supported by a combination of a persistently challenging tanker market plus regulatory pressure,” the firm's analysts wrote.
“Tankers are required to install costly ballast water management equipment at their next special survey.”
But Alphatanker would not rule out the possibility of tanker owners holding on to aged assets for a potential “golden market” in 2023 and 2024, when fewer newbuildings will enter trading and oil demand is expected to have risen above the pre-pandemic level.
“Even considering the cost of equipping a tanker with a ballast water treatment system, a vintage tanker with its debts paid off could be a lucrative asset for an owner in a couple of years,” Alphatanker said.
“Its earnings over 2023 and 2024 could offset its losses over the [period between] second half of 2020 and 2022.”
Even if the market recovery is not derailed, Alphatanker expects gains in tanker earnings to be capped by rising bunker costs.
“We only forecast a modest recovery in earnings which should permit owners of non-scrubber equipped tankers to cover their costs rather than enjoy stellar returns,” its analysts wrote.
