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World GDP growth averaged 5.4% in 2006, which was the highest since the 1970s, led by growth in emerging economies, Africa, the Middle East and the Unites States. High energy prices resulted in global oil consumption growing at the slowest pace since 2002, a mere 0.9% growth YoY.
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During 2006, crude tanker freight rates remained close to the high levels experienced in 2005. Record high levels of global oil production coupled with increasing longer-haul trade patterns and moderate growth in fleet supply compared to previous years underpinned the strength in tanker earnings. In the product tanker market rates for large tankers declined as a result of heavier than usual petrochemical plant maintenance schedules and growth in fleet supply. However rates for medium and intermediate size product tankers remained at historically high levels, as import volumes into key consuming regions rose with imports being sourced from longer-haul sources.
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At the end of 2006, the size of world tanker fleet stood at 340 mdwt, compared to 321 mdwt in 2005, a growth of 5.8% YoY. New deliveries and deletions fell by 13.6% and 23.1% respectively. Strong freight rates for tankers dissuaded shipping companies from replacing their old vessels. The order book at the end of 2006 rose to 130 mdwt, the highest level since 1970s. However, new building delivery lead times have also risen to record highs of 3 to 4 years.
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Congestion in ports affected the dry-bulk markets significantly. The year started with short waiting times at ports, and things were reasonable until mid-year, but thereafter the need for throughput sometimes surpassed the port capacities, which caused increasing waiting times, making tonnage unavailable and putting further pressure on supply in an already bullish market. The longest queues occurred in Newcastle, where ships ended the year having to wait approximately a month. Capes, which asked for over US$ 30,000/day in the first half of 2006, finished the year with time charter levels of around US$ 70,000/day.
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IMF estimates 4.9% global GDP growth for 2007 on the back of a rapid growth in China and India and a moderate growth in the US. This is slightly lower than the 5.1% growth achieved in 2006. A strong global GDP growth should lead to a strong demand for key industrial raw materials like crude, iron ore and coal. This is expected to aid the shipping industry’s growth.
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As of April 2007, the IEA estimated global oil demand growth of 1.5 m barrels per day (mbpd) (or 1.8%) for 2007 led by increased demand in China and North America. A large drawdown in stocks in the Atlantic basin (led by OECD North America) in early 2007 points towards higher import volumes during the summer months, which when coupled with forecasted increased demand for OPEC oil in the latter half of the year supports demand for tankers in 2007.
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The sharp increase in domestic refining capacity and a pick up in oil exploration activity will benefit the offshore shipping lines as demand for their services picks up. As a result of the commissioning of large domestic refining capacities, the import of crude is expected to jump in the future. This would benefit shipping majors.
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With increasing demand for energy oil all over the world, offshore exploration for oil and gas will remain an important activity. With oil prices at their oil time high, exploration activities are assuming importance. Also, since the 80% of the rig facilities are more than 20 years old, huge replacement opportunity exists for offshore players.
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Following some big accidents in seas, environmental regulations have hardened for single hull tankers. The International Maritime Organistaion (IMO) has stipulated that all single hull ships be scrapped by 2010.
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In 2005, 6.9 mdwt of fleet was scrapped and the same for 2006 was at 4 mdwt. The rate of scrapping has fallen from 2004 onwards due to strong freight rates prevailing in the market. However, the pace of scrapping is expected to gain momentum as we approach 2010. Since, 36% of the total global tonnage is single-hull, tanker rates are expected to be strong in the medium-to-long term.
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