Why 5- and 10-year Very Large Crude Carrier prices are consistent


Dec. 4 2020, Updated 10:50 a.m. ET

VLCC prices

Five-year-old VLCC prices remained consistent, at $75 million, with the previous month’s levels. Year-over-year prices increased by 36%. Ten-year-old VLCC prices stood unchanged at $48 million and increased by 41.2% year-over-year.

For the tanker market, RS Platou comments that despite the summer season, it has been a fairly active. However, a soft chartering market continues to pressure product tanker values—especially for modern tonnage. With a healthy crude tanker chartering market, RS Platou expects an increasing interest in crude tonnage specifically for five-year-old and ten-year-old units.

The difference compared to newbuilds

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Led by quicker deliveries, price movements in secondhand vessels tend to reflect industry participants’ expectations for medium-term fundamentals. Price movements for newbuild buyers and sellers don’t do this. They have to wait for about two years for delivery. So this trend suggests that secondhand vessel prices tend to be more responsive to changes in current rates.

Since buyers and sellers are more medium-term thinkers, they’re more responsive to industry turnarounds compared to newbuilds. Although this only takes about one or two months, share prices can move fast in a short period.

Vessel price appreciation

Investors should consider that analysts use secondhand vessel prices to value tanker shipping companies in the stock market. The higher the value of these assets, the higher the value of a company’s assets. Changes to the value of a firm’s assets would also have a magnified impact on shareholders’ equity (the value of ownership in the company) after subtracting debt.

As long as these prices continue to rise, tanker stocks like Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), and Frontline Ltd. (FRO) should continue to benefit from higher rates and valuations—unless already priced in. If vessel values eventually come down because of over-optimistic expectations for rates, these stocks and the Guggenheim Shipping ETF (SEA) could be negatively affected.


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