L&S slashes 2017 VLCC earnings estimates 20%

But broker maintains view that the market will see improvement from the second half of 2018.

Lorentzen & Stemoco has cut its estimates for VLCC earnings in 2017 by 20% on concerns about excessive tonnage supply.

The Oslo-based shipbroker said expects the large crude tankers to earn around $28,000 per day, according to its latest sector update.

“The scheduled crude tanker deliveries in 2017 stand at 13% higher than the order book for 2016,” says Lorentzen & Stemoco.

“Year-to-date we have seen crude tanker deliveries total more than twice what was delivered in all of 2015 in mdwt terms.

“With fleet growth accelerating this year and set to continue to do so in 2017 and a possible OPEC deal which may substantially support prices it could put additional pressure on the tanker market next year.”

However, if the supply side is causing the trouble, Lorentzen & Stemoco says it also looks to be the saviour this time.

“In 2018, some 8% of the existing VLCC and suezmax fleet will have reached 20 years growing to 16% in 2020,” it says.

“In a lower freight market, scrapping, which has all but disappeared in the strong market of the past two years, should start to pick up significantly.

“Newbuilding activity has also been exceptionally low since the beginning of this year, a headache for yards but allowing for weak tanker fleet growth in 2018 and 2019 if continued.”

Lorentzen & Stemoco says the ratification of the IMO Ballast Water Convention is also likely to further incentivize scrapping activity.

“Retrofitting of treatment systems adds $2-3m on top of normal dry docking costs for large tanker vessels, an expenditure that makes little sense for older vessels priced only a little above scrap,” it says.

Some 18 VLCCs and 26 suezmaxes have their fourth special survey coming up in 2017 or 2018, according to Lorentzen & Stemoco data.

“If values trend as in the last trough we could have another -10% downside to expect into next year, making it even harder to defend the cost of retrofitting ballast water treatment systems on older vessels trading in a lower market.”

However, Lorentzen & Stemoco says it maintains its view that the market will see improvement from the second half of 2018, with the potential downside in the cycle lasting for a shorter time than what has been seen historically.