Euronav’s (EURN) thoughts on the rising orderbook will help us assess the crude (DBO) tanker industry as well as companies like Frontline (FRO), Teekay Tankers (TNK), DHT Holdings (DHT), Nordic American Tankers (NAT), and Tsakos Energy Navigation (TNP).
According to Euronav, the vessel orderbook growth continued in the third quarter. The company states there are around 13 VLCCs (very large crude carrier) and 12 Suezmax vessels ordered in the third quarter. The total orderbook stands at 15% of the total fleet.
According to Clarkson, there has been a big change in the 2016 VLCC orderbook. It expects the delivery of 45 VLCCs in 2016. Earlier, 40 VLCCs were expected to be delivered. Its scrapping expectations reduced to six from 12 earlier. The net effect, 39 more VLCCs will be added to the existing 648 VLCCs globally. The highest VLCC deliveries will be in 4Q16.
In 2016, the Suezmax orderbook is comparatively lighter. The company terms the Suezmax orderbook as “more of a 2017 story.” In 2016, there are 30 Suezmax deliveries. In 2017, there are 40 Suezmax deliveries.
Thoughts on the orderbook
Euronav thinks that the rise in the orderbook is partly due to the Tier 3 legislation on nitrogen oxide emissions. The legislation is applicable from January 2016. In order to avoid the extra costs associated with complying with this new environmental legislation, companies are ordering tankers before January 2016.
In its third quarter conference call, Euronav stated that every new order is negative for the tanker industry. However, the company still views the industry orderbook as “growing, but moderate and manageable.” Euronav thinks that there will always be some attrition around 4%–5% every year. So, a 15% orderbook over three years isn’t unusual.
Looking at the age profile of vessels, Euronav thinks that scraping activity will accelerate in 2018. The company thinks that financing for tankers will act as a barrier to entry. Its stated that the new era of financing is restrictive. Bank debt, as a percent of total shipping finance, fell by 26% since 2008.
Tanker owners don’t share the same thoughts on the existing orderbook. In the third quarter conference call, Frontline’s management indicated that it views the orderbook as a concern. Similarly, Nordic American Tankers stated that the market is negatively affected by the rise in supply.