Drewry: Scrapping to "Heavily" Influence Tanker Market Recovery

Drewry says it predicts demolitions to gain momentum by the end of 2017. Image: Drewry

Drewry Shipping Consultants Limited (Drewry), in its latest Tanker Forecaster, said the timing of any tanker market upturn will be "heavily influenced" by the level of scrapping.

"We expect the market to start a gradual recovery from 2020. For any recovery before 2020, demolitions need to be strong enough to keep fleet growth slower than demand growth," said Rajesh Verma, Drewry's lead analyst for tanker shipping.

While scrapping activity has not increased as of yet, Drewry says it predicts demolitions to gain momentum by the end of 2017 - once the International Maritime Organization's (IMO's) new ballast water management (BWM) convention is implemented.

"The ongoing overcapacity in the tanker market is expected to persist further in 2017 because of a sharp increase in deliveries," explains Drewry.

"Although tonnage deliveries are projected to decline after 2017, given a weak demand outlook hope of recovery will hinge on the extent of scrapping activity, which will be influenced by forthcoming IMO regulations on ballast water treatment."

Still, the consultancy expects that the actual impact of the BWM convention will not be seen until 2018.

"In the existing fleet, there are about 20 mdwt of vessel capacity aged 19 years or more, for which the fifth special survey is due during 2017-22. Drewry assumes that all of these vessels will be scrapped during 2017-22, as unattractive freight rates, poor employability and the additional cost associated with complying with the forthcoming IMO regulations will force owners to scrap them," said the consultancy.

Drewry notes that there is currently approximately 367 vessels that are due for their fourth special survey in 2017 to 2022, with owners of vessels in the 14-19 year age range left to decide whether to scrap them before they are due for their next survey.

"If we assume that about a third of these vessels are demolished during the forecast period 2017-22, the recovery in tanker freight rates will not start until after 2019. However, the extent of actual demolitions will be a crucial factor for deciding how quickly the market recovers," said Drewry.

Earlier this month, E.A. Gibson Shipbrokers Ltd. (Gibson) said tightening environmental regulations on bunkers in 2020 could create a shift in the product tanker market, boosting the clean tanker segment in the process.