Oil tanker scrappage to hit multi-year high

SINGAPORE: The shipping industry will this year scrap the largest number of oil tankers in over half-a-decade, driven by weak earnings, firm prices for scrap steel and the need to prepare fleets for strict new environmental regulations.

The surge in scrapping underscores how the sector is grappling with one of its worst-ever crises, hit hard after rates for transporting oil plunged to multi-year lows in the wake of excess tanker supply and tepid demand as OPEC production cuts bite. "The tanker markets are definitely in a trough at the moment, with one of the worst years in a decade in terms of freight rates and returns," said Ralph Leszczynski, head of research at ship broker Banchero Costa in Singapore.

The tough operating conditions are expected to persist until at least the second-half of 2019, analysts and industry sources said.

Estimates on the number of tanker demolitions vary between the four shipping analysts that Reuters spoke to, with the most conservative standing at a seven-year high in 2018.

About 10.3 million deadweight tonnes (DWT) have been sold for demolition from January to April this year, compared with 11.2 million DWT for the whole of 2017 and 2.5 million for 2016, said Erik Broekhuizen, head of tanker research and consulting at ship broker Poten & Partners Inc.

"OPEC production cuts are hurting the market, and as long as they are in place, the tanker market will remain challenged," he said, adding that scrapping had picked up for large vessels in particular. Since early 2017, members of the Organization of the Petroleum Exporting Countries (OPEC), Russia and other non-OPEC crude producers have curbed exports to fight a global oil glut.

The imposition of new U.S. sanctions against Iran looks set to further reduce oil flows later in 2018, although Saudi Arabia and Russia have discussed potentially raising output to fill the subsequent void.

More stringent environmental regulations to be implemented by the International Maritime Organisation (IMO) in 2020 will make operating old ships uneconomical, said Leszczynski at Banchero Costa.