Demolition could be a key driver toward bringing back tanker market balance. File Image / Pixabay
The latest edition of Tanker Opinions, published by the Tanker Research & Consulting department at Poten & Partners, say many tanker market observers think demolition is a key driver toward bringing back market balance and restoring freight market health.
"The argument is that as tanker earnings regularly dip below operating expenses and more and more charterers discriminate against older (>15 years) vessels, demolition starts to look more attractive, especially with scrap prices on the rise," explains Poten & Partners.
In addition, the consultancy points out that investments required as a result of tightening regulation around ballast water treatment systems and the sulfur content in bunkers could play a role in scrapping decisions.
Commenting on the VLCC segment, Poten & Partners said: "given the low utilisation rate of most of these vessels, scrapping them will have a limited impact on the market balances."
Poten & Partners
The argument is that as tanker earnings regularly dip below operating expenses
While VLCC scrapping should help market balance, Poten & Partners further suggests that with 85 deliveries already scheduled for 2018 and 2019, tonne-mile demand growth is also needed to help the situation.
However, with an OPEC promise to keep its production cuts in place through June, tonne-mile demand growth may be a limited option for the overall tanker market, suggests the consultancy.
Last May, Drewry Shipping Consultants Limited (Drewry), said the timing of any tanker market upturn would be "heavily influenced" by the level of scrapping.