Clarksons Platou Securities has taken an axe to its previous VLCC earnings predictions — but says better times really will arrive.
With a recovery in rates seemingly on permanent hold, the Norwegian investment bank said the outlook is becoming "increasingly" promising after owners suffered a very difficult 2021.
Analysts Frode Morkedal and Omar Nokta said steep Opec+ production cuts carried out in 2020 will fully unwind by this autumn, tightening vessel supply and boosting rates.
The sale-and-purchase market has become more active in the tanker sector, with cash buyers boosting values in recent weeks, supporting owners with added balance sheet flexibility as they await a recovery in earnings, they added.
"A major growing theme we expect to continue is the increased focus on modern, fuel-efficient tonnage especially as new regulations come into effect in 2023 with respect to emissions," Morkedal and Nokta said.
A growing gap
"As such, we expect a growing disparity in vessel values and buying interest overall between younger, eco-focused ships and older, conventional tonnage," they added.
But VLCC earnings are not looking as good as previously expected.
Before the effects of Opec+ output rises are felt, there is just too much "slack" capacity around, the analysts argue.
However, the outlook is "quite promising" for the second half of 2022 and into 2023, they said.
VLCCs averaged just $7,000 per day in 2021 and Clarksons Platou is projecting $30,000 per day over the course of 2022, down from $40,000 in its previous forecast.
For 2023, the company expects rates to average $50,000, down from its earlier estimate of $55,000.
The analysts identify a continuing widening in earnings power as eco-design VLCCs banked $13,000 per day on average last year, while scrubber-fitted tankers earned $16,000.
"We expect these wide variances will continue going forward across all tanker segments," they said.
VLGC rates cut for 2023
The investment bank also examined VLGC rates, which performed well in 2021 due to LPG price volatility and arbitrages driving activity levels and countering seasonal norms.
On a worldwide basis, VLGC spot rates averaged a healthy $35,000 per day last year.
This is a high figure from a historical perspective, but below the $45,000 achieved in both 2019 and 2020.
The vessel class has made a strong start to 2022 and rates are averaging nearly $50,000 per day so far in the first quarter, Clarksons Platou said.
"The winter months have typically been associated with reduced spot VLGC activity and lower spot rates, but this year and last year are bucking that trend as wide LPG price differentials between the US, Europe and Asia are driving volumes higher," Morkedal and Nokta said.
Clarksons Platou is maintaining 2022 VLGC rate forecasts of $32,000 per day.
But the figure for 2023 has been cut from $30,000 to $25,000 due to higher scheduled newbuilding deliveries next year.
