Crude tanker orderbook
The crude tanker orderbook, which includes tankers under construction, are looked at by investors on top of crude tankers on order because it provides additional data that factors in when managers want ships to be delivered so that they can generate maximum profits. If managers expect the supply and demand balance to be unfavorable within a year or two, they may ask to push the delivery further out into the future. This will mean lower construction activity in the near-term.
On the week ending July 5th, crude tanker orderbook, expressed as a percentage of capacity in deadweight (DWT)1, rose to 10.18% from 10.13%, another positive sign for the future outlook of the tanker shipping industry.
Construction remains weak
However, further investigation into the absolute number of ships on order and ships under construction reveals that most of the increase in the tanker orderbook came from new orders, which backlog has increased from 154 to 156 last week; the number of ships under construction, which has historically ranged between 60 and 100 ships, fell from 36 to 35. Construction activity is hitting a record low due to an oversupply of tanker ships and weak oil imports that was caused by an energy boom in the United States (see Oil rig activity stays high, negative for oil shipping). Although the number of ships under construction stood at 36 for the past four weeks, an indication that activity may be basing, we said last week that we needed more time until we can confirm further improvements in fundamentals. The market pays those who are patient.
For now, it seems like managers are in no rush to receive these new orders for service, which means fundamentals will likely remain weak in the short- to-medium-term— though new orders point to a long-term investment opportunity. This would be negative for companies such as Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), Ship Finance International Ltd. (SFL), Tsakos Energy Navigation Ltd. (TNP), and Scorpio Tankers Inc. (STNG) in the short to medium term, as well as the Guggenheim Shipping ETF (SEA). Investors expecting a strong recovery in the tanker industry this year may be disappointed.
Investors should review other drivers to see what’s currently driving the tanker shipping industry. Some must-reads include Shipping capacity growth drops but outpaces demand, negative for tanker stocks, Must-read: Financial woe abroad drags tankers down, outlook negative, Why oil price is a key driver of tanker stocks, Research shows China’s soaring housing prices actually support tanker firms, and Oil rig activity stays high, negative for oil shipping.
- A weight measure of the amount that a ship can safely carry across ocean ↩
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