NNA’s crude tankers and VLCC market fundamentals

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Product sector

Navios Maritime Acquisition’s (NNA) management commented that for 2004–2013, transportation demand—expressed in ton miles—is expected to increase by ~77%. Its compound annual growth rate (or CAGR) will be 6.5%. The increase in tanker demand is greater than the increase in overall trade. This is due to the growth in long-haul product tanker trades. The product exports from the US, India, and Saudi Arabia are up significantly from the levels in 2009. The exports drive increases in ton miles.

Product Tanker

 

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Product tanker

For 3Q14, tanker non-deliveries were 28%. There were 4.9 million deadweight tonnes (or DWT) delivered out of a projected 6.8 million DWT. Almost 5.4% of the product tanker fleet is at least 20 years old. The orderbook is 25.8 million DWT—or ~19% of the fleet. This level is adequate for regular replacement of an existing fleet with little or no demand growth.

High scrap prices should encourage more scrapping of older or single-haul units. Demolition prices depend on overall steel prices and not the vessel supply.

VLCC supply fundamentals

For 3Q14, Very Large Crude Carrier (or VLCC) non-deliveries were 39%. This indicates that 5.1 million metric tons (or MT) were delivered. 8.4 million DWT were rejected. They were mainly affected because elevated scrapping and non-delivery levels continued. Net fleet growth slowed dramatically. In contrast, there are high steel and fuel prices. As a result, scrapping and removals continued. As of October, 11 vessels were scrapped. This accounts for ~3.25 million DWT.

Maximizing tankers’ revenue

The requirements for gasoil in Europe and Latin America can be met by shipping the oversupply westward from Asia and the Middle. It can also be shipped eastward from the US. Similarly, requirements for gasoline in Asia can be met by shipping the excess supply eastward from Europe and the Middle East. Increasing worldwide product imbalances point to increased ton-mile development. This global, multi-directional trade pattern enables product tankers to triangulate. This minimizes balance time and maximizes revenue.

This would benefit tanker companies like Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Scorpio Tankers Inc. (STNG), and Capital Product Partners (CPLP). It would also benefit the Guggenheim Shipping ETF (SEA).

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