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Thursday, August 20, 2009

Coastal chemical tankers facing the waves

Thursday, 20 August 2009

The coastal chemical tanker sector was severely impacted by the deterioration of the world economy, with trade volumes across all routes declining sharply during the fourth quarter of 2008 and the first quarter of 2009, thus affecting freight rates. This came as a direct result of significant cutbacks of production from chemical commodity producers, which were experiencing an unprecedented inventory destocking and were looking to idling or even shutting down plants. According to the Shipping Division of German-based DVB Group – Research and Strategic Planning, the coastal chemical tankers market outlook is bearish for 2009 and until the first half of 2010. DVB said that “while the demand side of the equation is drying up, tonnage supply is constantly increasing. The oversupply of tonnage and the undersupply of cargoes seem to be setting the stage for a gloomy outlook for 2009 and beyond. Despite the fact that the 2Q09 market developments indicate a recovery for Speciality Chemical tanker trades, we believe that this is only temporary and we expect the markets to correct, as stock replenishing reaches an end and fundamentals come back into play”.
The fact that most chemical producers scaled down their production led to diminished tonnage demand, thus bringing down Charter rates. The chemical tanker fleet utilisation dipped and many price-driven arbitrage trades collapsed. For instance, the Middle East – Far East appeared to be the most affected with rates for specific ship types plunging by as much as 43% during the first quarter of the year. According to DVB, freight rates for the so-called Easy Chemicals recorded a quarterly average decline of 15% between the third quarter of 2008 and the first quarter of 2009. Similarly, rates for specialty Chemical trades requiring Stainless Steel tanks, recorded a decline of 25% during the same period, slightly better than the 30% witnessed in the EasyChem trades.
The research indicates that while the coastal chemical seaborne trade is expected to slow down, over the four-year forecast period, volumes are anticipated to grow from 176.8 million tons in 2009 to 194 million tons by 2012, which is translated to an annual average growth of 4.3%. This means that further developments should take place regarding the chemical tanker fleet. DVB says that as of June 2009, coastal chemical trade is serviced by 810 vessels of 5.94 million dwt with an average age of 12 years. This translates to 13% of the total Chemical Tanker fleet capacity (36.36mio dwt) in terms of dwt.
The current orderbook in the 5,000 – 10,000 dwt category stands at 148 vessels or 1,066,869 dwt in total, which represents a 22% of the current fleet in terms of capacity and just 8.1% of the total chemical tanker orderbook which exceeds 13 million dwt. The average vessel size on Order is 7,208 dwt says DVB, while from the delivery side, the peak is expected to occur this year with 111 vessels of 800,000 dwt about to hit the water. This means that the outlook in terms of market performance is bearish.
Similarly, time charter rates for IMO2, 8,000-9,000 dwt chemical tankers are expected to bottom out during 2010 and gradually recover afterwards. “The recovery in T/C rates is expected to be a long one, with freight rates expected to reach trend growth after 2012” says DVB. Of course during this period, asset values couldn’t fare any differently, which was quite obvious during the first quarter of 2009. The research commented that “before the onset of the global financial and economic crisis, interested buyers had been opting to acquire spot second hand tonnage even at a premium, despite very high Newbuilding prices mainly due to the long forward cover shipyard had built up in the meantime, during the N/B frenzy. However, this trend ended abruptly following the emergence of the global economic crisis. Looking ahead, we expect that the ongoing global economic crisis will continue to have an effect both on Newbuilding and second hand values. We expect to see values stabilizing conditional upon an improvement in overall economic fundamentals” DVB concludes.

Nikos Roussanoglou, Hellenic Shipping News Worldwide