Product Tanker Outlook - banchero costa

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Aug 2018 – Product Tanker Market Outlook 1

Product Tanker Market Outlook (an analysis of the fleet profile, trade prospects, and rates)

August 2018

bancosta blue studies – volume WET 2018/#15

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banchero costa research

www.bancosta.com ; [email protected]

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1. Fleet Development page 3

2. Shipbuilding Trends page 19

3. Detailed Age Profiles page 27

4. The Demand Side page 32

5. The Charter and S&P Markets page 45

6. Final Words page 55

Index

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Fleet Development (deliveries, demolition, fleet growth)

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Over the next few slides we will illustrate the current situation of the fleet of medium range (MR) and long range (LR) product tankers, in terms of number of trading units, total deadweight, orderbook and projected fleet growth.

We assume our usual size definitions for tanker sectors, as shown clearly on the next slide (page 5). In this study we only consider units larger than 30,000 dwt. We therefore distinguish MR1, MR2, LR1, and LR2 segments.

We will only cover product tankers, therefore we will only include coated vessels used to carry clean and dirty petroleum products and vegetable oils in our standard deadweight ranges, excluding all non-coated vessels (i.e. crude oil tankers).

We do include IMO II and III ‘chemical tankers’ within this size range as such ships can and often do carry some petroleum products and the distinction between petroleum products and easy chems is quite fluid.

As can be seen in the pie charts on slides 6 and 7, MR2s (42,000-59,999 dwt) are the core sector in the product fleet, accounting for more than half of total ship numbers and 45 percent of total deadweight.

The MR2 fleet numbered 1,540 units as of the end of July 2018, for a total deadweight of 74.6 mln dwt. Smaller MR1s (30,000-41,999 dwt) numbered 708 units, totalling 26.3 mln dwt. There are also 375 LR1s totalling approximately 27.5 mln dwt and 333 LR2s totalling 36.4 mln dwt. In the first 7 months of 2018 have been recorded the delivery of 12 LR2s (1.35 mln dwt), 10 LR1s (0.74 mln dwt), 29 MR2s (1.45 mln dwt) and 9 MR1s (0.34 mln dwt).

A total of 17.6 mln dwt is on order for delivery within 2022, equivalent to 281 new vessels, the largest part of the orderbook is composed of MR2 with 48 percent followed by LR2 with another 35 percent.

In the first 7 months of 2018, we recorded the demolition of 37 product tankers, compared to just 10 units in the same period of 2017: 5 LR2s (0.5 mln dwt), 5 LR1s (0.3 mln dwt), 14 MR2s (0.7 mln dwt) and 13 MR1s (0.5 mln dwt).

The effect of slower deliveries and higher demolition rates is that the fleet growth slowed further from 6.5 percent in 2016 and 4.6 percent in 2017 to 2.7 percent in 2018. The fastest growing segment was the LR2 with 5.2 percent.

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Our size breakdown for tankers:

Name Deadweight Coating

• LR2 78,000-119,999 dwt Coated

• Aframax 78,000-119,999 dwt NO

• LR1 60,000-77,999 dwt Coated

• Panamax 60,000-77,999 dwt NO

• MR2 42,000-59,999 dwt Coated

• MR1 30,000-41,999 dwt Coated

(note: in this study, for all sizes, we only consider coated product tankers,

excluding crude oil tankers, shuttle and specialist vessels)

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The MR2 fleet is the largest numerically with about 1,540 units. MR1s number is about 708 units. There are also about 375 LR1s and 333 LR2s. The total product tanker fleet account for 2,956 units.

LR233311%

LR137513%

MR21,54052%

MR170824%

Product Tanker Fleet By Size Sector - in No. of Units(August 2018 ; only coated units 30,000-119,999 dwt ; in units)

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The total capacity of the MR2 fleet is now 74.6 mln dwt. MR1s total is about 26.3 mln dwt. There are also 27.5 mln dwt of LR1s and 36.4 mln dwt of LR2s. The total capacity of product tanker fleet is around 164.8 mln dwt.

LR236.422%

LR127.517%MR2

74.645%

MR126.316%

Product Tanker Fleet By Size Sector - in DWT(August 2018 ; only coated units 30,000-119,999 dwt ; in mln dwt)

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Deliveries in 2017 reached 9.2 mln dwt (138 units), a 12 percent decrease over 2016. LR2s were 45 percent of total tonnage delivered followed by MR2s with a further 34 percent. The orderbook for 2018, including 20 percent slippage, is estimated to total 7.4 mln dwt (114 units), of which MR2s and LR2s constitute 38 and 37 percent respectively.

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TProduct Tanker Deliveries + Orderbook in DWT - Annual

(August 2018 ; only coated units between 30,000-119,999 dwt ; in mln dwt ; assuming 20% slippage)

MR1 MR2 LR1 LR2

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In the first 7 months of 2018 we recorded the delivery of 60 vessels including 9 MR1s (0.34 mln dwt), 29 MR2s (1.45 mln dwt), 10 LR1s (0.74 mln dwt) and 12 LR2s (1.35 mln dwt). LR2s and MR1s recorded strong decrease compared to the same period of 2017 (-52 and -36 percent respectively), MR3s a smaller -22 percent and LR1s remained stable.

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07/2015 01/2016 07/2016 01/2017 07/2017 01/2018 07/2018

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TProduct Tanker Deliveries in DWT - Monthly

(August 2018 ; only coated units 30,000-119,999 dwt; in mln dwt)

MR1 MR2 LR1 LR2

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In 2017 a strong increase of demolitions was registered with exception of MR1s: in total 1.9 mln dwt were scrapped (+114 percent over 2016). 9 MR1s (0.33 mln dwt; -29 percent); 14 MR2s (0.66 mln dwt; +99 percent); 5 LR1 (0.27 mln dwt; only one unit was demolished in 2016); 6 LR2s (0.6 mln dwt; compared to none in 2016). Moving forward we expect the demolition activity to get stronger due in particular to the changing regulations (WBTS and Sulphur Cap).

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2011 2012 2013 2014 2015 2016 2017 2018 (f) 2019 (f) 2020 (f)

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TProduct Tanker Demolitions in DWT - Annual

(August 2018 ; only coated units between 30,000-119,999 dwt ; in mln dwt)

MR1 MR2 LR1 LR2

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Demolition picked up in the second half of 2017 and gained momentum during the last quarter and in January 2018. In the first 7 months of 2018 we recorded the demolition of 37 product tankers, accounting for 2.0 mln dwt, of which 14 were MR2s, 13 MR1s, 5 LR1s and just 5 LR2s.

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07/2015 01/2016 07/2016 01/2017 07/2017 01/2018 07/2018

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TProduct Tanker Demolitions in DWT - Monthly

(August 2018 ; only coated units 30,000-119,999 dwt ; in mln DWT)

MR1 MR2 LR1 LR2

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In the first 7months of 2018 deliveries outpaced growth in all segments expect MR1s, resulting in a net growth of 4.4 mln dwt. LR2s and MR2s have experienced the largest growth with a 3.3 mln dwt and 0.8 mln dwt increase respectively, while MR1s’ fleet record a shrinkage of 0.2 mln dwt.

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TDeliveries and Demolition in DWT - Jan-Jul 2018(August 2018 ; only coated units between 30,000-119,999 dwt ; in mln dwt)

Demolitions Deliveries

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Our growth forecast for 2018-2020 is based on the current orderbook, then assuming a 20 percent rate of slippage, and assuming demolition activity to gradually rise over this period as shown on slide 10.

3.5%1.7% 1.9% 2.9%

6.2% 6.5%4.6%

2.7% 2.5%0.5%

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2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) 2020(f)

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TProjected Total Product Tanker Fleet Growth

(August 2018 ; only coated product tankers of 30,000-119,999 dwt ; in mln dwt ; assuming 20% slippage)

All Products Tanker Fleet Sizes Y-o-Y Growth

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0.5% 0.7%

-2.0%

1.8%

10.7% 11.8% 10.6%

5.2%3.5%

0.5%

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2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) 2020(f)

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TProjected LR2 Tanker Fleet Growth

(August 2018; only coated product tankers of 78,000-119,999 dwt ; in mln dwt ; assuming 20% slippage)

LR2 Tanker Fleet Y-o-Y Growth

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7.4%

2.5%1.0%

-1.2% -2.0%

4.4%2.9% 2.9%

0.0%

-1.3%

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2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) 2020(f)

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TProjected LR1 Tanker Fleet Growth


LR1 Tanker Fleet Y-o-Y Growth

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3.3%1.8%

3.5% 4.6%7.2%

5.3%3.0%

1.7% 2.8%1.0%

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2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) 2020(f)

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TProjected Total MR (MR1+MR2) Tanker Fleet Growth


MRs Tanker Fleet Y-o-Y Growth

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6.0%3.4%

6.1% 6.4%8.4%

6.5%

3.4% 2.5%4.2%

1.8%

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2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) 2020(f)

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TProjected MR2 Tanker Fleet Growth


MR2 Tanker Fleet Y-o-Y Growth

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-1.9% -1.5% -2.2%

0.1%

4.2%2.1% 1.8%

-0.6% -1.2% -1.2%

23.5

24.0

24.5

25.0

25.5

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26.5

27.0

2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) 2020(f)

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TProjected MR1 Tanker Fleet Growth


MR1 Tanker Fleet Y-o-Y Growth

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Shipbuilding Trends (newbuilding orders, major builders)

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In the first 7 months of 2018 were recorded 44 orders for a total 2.4 mln dwt, -27 percent compared to the same period of 2017 in term of dwt. These orders included 5 MR1s (0.2 mln dwt), 35 MR2s (1.8 mln dwt) and 4 LR2s (0.5 mln dwt). Still no LR1s have been reported ordered in 2018.

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07/2015 01/2016 07/2016 01/2017 07/2017 01/2018 07/2018

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TProduct Tanker Newbuilding Orders in DWT - Monthly

(August 2018 ; all coated units 30,000-119,999 dwt ; in mln DWT)

MR1 MR2 LR1 LR2

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In 2017 were registered 70 orders for a total 4.8 mln dwt, +228 percent compared to 2016. These orders included 2 MR1 (0.1 mln dwt), 46 MR2s (2.3 mln dwt), 1 LR1s (0.1 mln dwt) and 21 LR2s (2.4 mln dwt).

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1 25

40

118

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2014 2015 2016 2017 2018 (1-7)

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Product Tanker Newbuilding Orders by Ship Size - Annual(August 2018 ; only coated units between 30,000-119,999 dwt ; in units)

MR1 MR2 LR1 LR2

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Due to strong deliveries and the low number of new orders, the ratio of orderbook to trading fleet continues to shrink. LR2 are the exception: with 21 orders in 2017 and 4 in 2018 the ratio increased to 17 percent.

5%

11%

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17%

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20%

MR1 MR2 LR1 LR2 Total

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Trad

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Flee

tProduct Tanker Orderbook as Proportion of Trading Fleet

(August 2018 ; only coated units between 30,000-1199,999 dwt ; in units)

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The ‘standard’ sizes of product tankers have been standardized between the following four typologies: LR2s of 105-120,000 dwt, LR1s of 73-80,000 dwt, MR2s of 45-52,000 dwt and MR1s of 32-42,000 dwt.

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1988 1993 1998 2003 2008 2013 2018

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Year of Delivery

Product Tanker Delivered Units Size Distribution(only coated vessels between 30,000-120,000 dwt ; delivered as year of built/capacity matrix)

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The ‘standard’ sizes of product tankers have been standardized between the following four typologies: LR2s of 105-120,000 dwt, LR1s of 73-80,000 dwt, MR2s of 45-52,000 dwt and MR1s of 32-42,000 dwt.

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08/18 01/19 08/19 02/20 08/20 02/21 08/21

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Year of Delivery

Product Tanker Orderbook Size Distribution(all coated units between 30-120,000 dwt ; delivered as year of built/capacity matrix)

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Of the 44 orders recorded during the first 7 months of 2018, South Korea won 23 orders, followed by China with 12, Vietnam with further 5 orders and Japan with only two 49,800 dwt units ordered at JMU shipyards.

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53

52 2

58

91

8 7

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29

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57 6

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Product Tanker Orders by Country of Built - Annual(August 2018 ; only coated units between 30,000-119,999 dwt ; in units)

Japan Korea China Vietnam Other

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Output from Japanese shipyards has declined since the beginning of the decade, with the sector increasingly dominated by established South Korean, Chinese and emerging Vietnamese shipyards.

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Product Tanker Age Profile by Country of Built(August 2018 ; only coated units between 30,000-119,999 dwt ; in units)

Japan Korea China Europe Vietnam Others

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Detailed Age Profiles (for individual sizes)

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LR2 Product Tanker (78,000-119,999 dwt) Age Profile (in units)

Scrapped or Total Loss Trading Orderbook(updated in August 2018)

Age range 30 yrs + 25-29 yrs 20-24 yrs 15-19 yrs 10-14 yrs 5-9 yrs up to 4 yrs

No of units 1 1 13 23 74 97 124

% of fleet 0% 0% 4% 7% 22% 29% 37%

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LR1 Product Tanker (60,000-77,999 dwt) Age Profile (in units)



No of units 0 2 1 36 174 116 46

% of fleet 0% 1% 0% 10% 46% 31% 12%

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MR2 Product Tanker (42,000-59,999 dwt) Age Profile (in units)



No of units 3 17 76 161 455 448 380

% of fleet 0% 1% 5% 10% 30% 29% 25%

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MR1 Product Tanker (30,000-41,999 dwt) Age Profile (in units)



No of units 8 17 53 151 258 103 118

% of fleet 1% 2% 7% 21% 36% 15% 17%

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The Demand Side (oil production, demand, trade)

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After a strong rebound in 2015, when demand growth increased 6 percent, consumption of oil products remained fairly strong with a 4.4 percent in 2016 but lower in 2017 with juts 1.6 percent. In 2018 and 2019 a slightly better

growth, of respectively 2.1 and 2.2 percent, is expected, both below the expected fleet increase.

According to IEA, global refining throughput reached a record high during the fourth quarter of 2017 at 81.7 million bpd but fell slightly due to maintenance in the first quarter of 2018 at 80.8 million bpd, still up 0.6 million bpd Y-o-Y. The second quarter has been closed on the same level, still up 0.5 million bpd Y-o-Y, while in the third quarter 2018 runs are expected to jump at 82.8 million bpd (+1.3 million bpd Y-o-Y).

As per the most updated full year data, in 2017 the Asia-Pacific region accounts for almost 30 percent of global oil product exports, with Singapore, China and India leading the way. The US is the largest exporter, especially towards South America and Europe, and a growing share of U.S. exports has been reported shipped towards the Far East. Last evolutions of U.S.-China trade war risk to affected seriously this new trend reducing demand for very long-haul

trades and, as a consequence, ton x mile demand. Over 40 percent of global oil products imports are in the Asia-Pacific region, with Singapore as a trade hub accounting for 11 percent. Another significant area are the Americas –

both the US and Latin America, as well as Western Europe.

Chinese product demand grew 4 percent during the first 7 months of 2018 over the same period last year driving imports up 9 percent; exports recorded a strong grew of 30 percent y-o-y. According to CNPC annual report China’s net oil product exports may climb 31 percent to 46.8 million mt, around 1 million bpd, in particular gasoil exports are expected to boom 47 percent to 23.8 million mt equivalent to over 500,000 bpd. China's refinery throughput rose 8.9 percent Y-o-Y in the first 6 months of 2018 to almost 300 million mt, while oil product imports during 1H

2018 reached 16.5 million mt, up 9.7 percent Y-o-Y. The gasoline market in Asia could come under pressure in Q3 as demand is expected to be relatively weak at a time when supply from N Asia is likely to remain robust. China has issued a relatively higher volume of export quotas in 2018 than last year and, as a result, state-run firms will be looking to increase exports in Q3. in the first 1H of 2018 export quota for gasoline are 7.5 percent y-o-y.

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Over the same period India demand grew 7 percent during the first 7 months of 2018 Y-o-Y, around 300,000 bpd, but, due to an increase of internal throughput and a simultaneous stockpiles reduction, imports decreased slightly around 22,000 bpd (-2 percent) and exports decreased by 3 percent Y-o-Y or 43,000 bpd.

During the first 7 months of 2017 European demand remained substantially unchanged over the same period in 2017 loosing just 89,000 bpd to 9.5 million bpd. Imports in the largest importing area decreased 2 percent to 5.2 million bpd and exports decreased too at 4.9 million bpd.

After a very strong hike in 2016 (+35 percent), in 2017 Saudi Arabian exports remained unchanged around 1.4 million bpd and then boosted again in the first 7 months of 2018 averaging around 1.8 million bpd, an increase of around 35 percent compared with the same period of 2017. Dependence on imports however increased too reaching almost 80 percent to around 0.83 million bpd of products.

During the first 7 months of 2018 U.S. demand, the largest consuming country, increased 3 percent over the same

period in 2017 to 20.3 million bpd. Imports increased by a strong 18 percent, equivalent to around 285,000 bpd, to 1.9 million bpd whilst exports, after a strong growth in 2017, increased by a more modest 7 percent to 4.9 million bpd. The developments in U.S. are clearly key to shape the product tanker industry in the coming future; with higher oil prices more shale oil will be extracted and oil production exceeded 10 million bpd in November 2017, a level recorded only for a few months in 1970, and now is averaging around 10.5 million bpd.

The downstream sector will see major change during the next few years. Excess global refining capacity is set to

increase due to the slowdown in refined product demand growth. According to OPEC, global refining capacity additions to 2025 are forecast to amount 11.2 million bpd. At the same time, always according to OPEC, the growth of refined product demand in the same period is expected to increase by 8.9 million bpd, adding further pressure on margins. The Middle East sees the biggest growth in capacity and national companies in the region are venturing into international markets, targeting joint ventures, particularly in Asia. Even though Chinese capacity additions slow, the country maintains its recently acquired role as a net product exporter.

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14.6 14.3 14.7 14.8 15.0 15.3 15.8 16.2 16.2 16.6

6.8 7.5 8.4 8.7 9.2 9.6 10.2 10.7 11.1 11.74.7 4.8 5.0 5.2 5.4 5.6 5.9 5.8 5.7 5.73.0 3.6 3.7 3.8 4.3 4.3 4.3 4.3 4.9 5.0

3.9 3.63.6 3.4 3.4 3.5 3.3 3.3 3.3 3.214.5 13.5 13.4 13.0 12.8 12.2 12.1 12.8 12.6 13.0

6.9 6.77.1 7.1 7.2 7.2 7.3 7.7 7.9 8.28.0 7.77.9 8.1 8.2 8.1 7.9

8.3 8.58.812.3 11.6

11.5 11.6 11.1 11.4 11.210.9 10.1

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World Refinery Throughput by Region - Annual(source: BP energy review ; in million barrels per day)

US China Russia India Japan Europe Middle East Other Asia Other

After the downturn registered in 2009, global refinery throughput constantly increased, reaching almost 82.0 million barrels per day in 2017. The fall of oil prices which started in 2014 encouraged refinery activity, in particular in the Middle East and Far East where the mains new projects are planned to be realized.

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UKC

MedUSEC

AG

South Africa

West Africa

Far East

South East Asia

IndiaUS Gulf

ECSA

• Refined product trade has grown strongly over the last decade

• Global seaborne trade is now estimated at over 1.1 billion tonnes per year

• After a spike in 2015, and a good performance recorded in 2017, however demand growth kept slowing to an estimated 1.9 percent in 2018

• Trade patterns remain complex and dynamic

Oil Products – Global Trade

Major Oil Products Exporters in 2017: USA 4.6 mln bbl/d Middle East 4.0 mln bbl/d FSU 3.2 mln bbl/d Europe 2.8 mln bbl/d Singapore 2.0 mln bbl/d India 1.2 mln bbl/d China 1.0 mln bbl/d Other Asia 2.3 mln bbl/d

Major Oil Products Importers in 2017: Europe 3.7 mln bbl/d USA 2.2 mln bbl/d Middle East 1.0 mln bbl/d Singapore 2.7 mln bbl/d China 1.8 mln bbl/d Japan 0.9 mln bbl/d Other Asia 4.8 mln bbl/d C/S America 2.1 mln bbl/d

4.5% 0.9% 3.9% 1.7%6.2%

1.8%5.6%

1.9%

-5.0%0.0%5.0%

10.0%15.0%

2011 2012 2013 2014 2015 2016 2017 2018(f)

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The Asia-Pacific region accounts for 28 percent of global oil product exports, with Singapore, China and India leading the way. The US is the largest exporter, especially towards South America and Europe, but Middle East is growing its share mainly due to several refinery projects set to be completed in the area.

Singapore8%

India5% China

4%

Other Asia Pacific

10%

U.S.19%

Canada3%

S. & C. America3%

Europe12%

FSU14%

Middle East17%

Other 5%

Petroleum Product Exports By Region - 2017(Source: BP Energy Review, in percentage of total volume)

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Over 40 percent of global oil products imports are in the Asia-Pacific region, with Singapore as a trade hub accounting for 11 percent. Another significant area are the Americas – both the US and Latin America, as well as Western Europe

Singapore11% China

8% Japan4%

Australasia3%

Other Asia Pacific17%

U.S.9%

Mexico4%

S. & C. America9%

Europe17%

Middle East4%

Other 14%

Petroleum Product Imports By Region - 2017(Source: BP Energy Review, in percentage of total volume)

banchero costa


During the first 5 months of 2018 Chinese demand increased 4 percent over the same period in 2017 to 12.8 mln bpd. Imports increased 9 percent to 1.3 mln bpd whilst recored a strong growth averaging around 1.3 mln bpd (+30 percent).

0

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0

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-15

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15

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No

v-1

5

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-16

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-16

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16

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-16

No

v-1

6

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-17

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-17

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17

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No

v-1

7

Jan

-18

Mar

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-18

'00

0 b

pd

China Products Imports, Exports and Demand - Last 3 years(August 2018 ; source: Jodi ; monthly data ; in thousand bpd)

Imports Exports Demand (right axis)

banchero costa


During the first 5 months of 2018 Indian demand increased 7 percent over the same period in 2017 to 4.74 million bpd. Imports lost 2 percent to 0.85 million bpd and exports lost around 3 percent reaching 1.35 million bpd.

0

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6,000

0

300

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-15

No

v-1

5

Jan

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Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-17

Jan

-18

Mar

-18

May

-18

'00

0 b

pd

India Products Imports, Exports and Demand - Last 3 years(August 2018 ; source: Jodi ; monthly data ; in thousand bpd)


banchero costa


During the first 5 months of 2018 European demand remained quite stable over the same period in 2017 to 9.5 million bpd. Imports decreased 2 percent to 5.2 million bpd and exports lost 1 percent at 4.9 million bpd.

*: Selected countries:

France, Germany, Italy, Netherlands, Spain and U.K.

8,000

8,500

9,000

9,500

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10,500

11,000

3,000

3,500

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5,500

6,000

May

-15

Jul-

15

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-15

No

v-1

5

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-16

May

-16

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16

Sep

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No

v-1

6

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-17

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17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

'00

0 b

pd

Europe* Products Imports, Exports and Demand - Last 3 years(August 2018 ; source: Jodi ; monthly data ; in thousand bpd)


banchero costa


Saudi Arabian exports recorded a very strong hike in the first 5 months of 2018 increasing by 35 percent compared with the same period in 2017. During the same period Saudi Arabian demand lost some ground reaching around 2.1 million bpd, while imports increased by 79 percent reaching 0.8 mln bpd.

0

500

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3,000

3,500

0

300

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May

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Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-17

Jan

-18

Mar

-18

May

-18

'00

0 b

pd

Saudi Arabia Products Imports, Exports and Demand - Last 3 yrs(August 2018 ; source: Jodi ; monthly data ; in thousand bpd)


banchero costa


During the first 5 months of 2018 U.S. demand increased 3 percent over the same period in 2017 to 20.3 million bpd. Imports recorded a strong growth of 18 percent to 1.9 million bpd whilst exports increased slightly by 7 percent reaching 4.9 million bpd.

0

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16,000

20,000

24,000

0

1,000

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4,000

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6,000

May

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Jul-

15

Sep

-15

No

v-1

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Jan

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-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

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Mar

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May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

'00

0 b

pd

U.S. Products Imports, Exports and Demand - Last 3 years(August 2018 ; source: Jodi ; monthly data ; in thousand bpd)


banchero costa


In the first 5 months of 2018, U.S. exports have increased by 7.5 percent in the direction of the main North American partners, in particular towards Mexico, passing from 1.4 mln bpd exported in the first 5 months of 2017 to 1.8 mln bpd recorded in 2018. Despite the showed slowdown to the other areas, total U.S. Exports have lost 3.3 percent y-o-y.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

mill

ion

bp

dU.S. Products Exports by Destination - Last 10 years(August 2018 ; source: EIA ; major importers ; monthly data ; in million bpd)

North America Latin America Sub-Saharan Africa F East N Europe Med/B Sea Others

banchero costa


Charter and S&P Markets (rates, values, sales volumes)

banchero costa


In the first 7 months of 2018 LR2 earnings were at their lowest in 4 years with an average TCE on Middle East Gulf to Japan trade just over $7,600/d, a decrease of 5.5 percent compared to the same period of 2017 and less than two thirds of the average rate in 2016.

0

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20,000

30,000

40,000

50,000

60,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

USD

/Day

Baltic Exchange LR2 MEG/Japan (75k mt) TCE - Seasonality(August 2018 ; source: the baltic exchange ; daily data ; USD/Day)

2015 2016 2017 2018

banchero costa


Also LR1 earnings were at their lowest in 4 years with an average TCE on Middle East Gulf to Japan trade at just $7,350/d, around 3.5 percent less compared to 2017 and more than two third of the average rate in the first 7 months of 2015.

0

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20,000

25,000

30,000

35,000

40,000

45,000


USD

/Day

Baltic Exchange LR1 MEG/Japan (55k mt) TCE - Seasonality(August 2018 ; source: the baltic exchange ; daily data ; USD/Day)

2015 2016 2017 2018

banchero costa


MR rates on the trade from Continent to US Atlantic coast registered an almost uninterrupted dowtrend during the first 7 months of 2018. The average TCE on the route was $5,700/d, a 36 percent decrease compared to the same period of 2017 and an even stronger slowdown of 74 percent considering the first 7 months of 2015.

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000


USD

/Day

Baltic Exchange MR Cont/USAC (37k mt) TCE - Seasonality(August 2018 ; source: the baltic exchange ; daily data ; USD/Day)

2015 2016 2017 2018

banchero costa


Since the beginning of 2018 MR rates on the South Korea to Singapore trade averaged around $4,900/d, recording a slight decrease of 3 percent compared with the same period of 2017, and still down 62 percent compared to 2015.

0

5,000

10,000

15,000

20,000

25,000


USD

/Day

Baltic Exchange MR S. Korea/Singapore (40k mt) TCE - Seasonality(August 2018 ; source: the baltic exchange ; daily data ; USD/Day)

2015 2016 2017 2018

banchero costa


The Atlantic Triangulation (Rotterdam/New York-Huston/Amsterdam) recorded its record low in mid July 2018 reaching just $2,050/d.In the first 7 months of 2018 the Atlantic Tringulation averaged around $8,500/d, a 20.9 percent decrease compared to 2017. The Pacific Triangulation (Sikka/Chiba-Yeosu/Singpore-Sikka) in 2018 averaged $9,080/d a decrease of 11.8 percent compared to the same period of 2017.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

08/2015 12/2015 04/2016 08/2016 12/2016 04/2017 08/2017 12/2017 04/2018 08/2018

USD

/Day

Baltic Exchange MR Atlantic and Pacific Triangulation - Last 3 years(August 2018 ; source: the bacltic exchange ; in USD/Day)

Atlantic Pacific

banchero costa


Short period rates for LR2 registered a downtrend for the whole 2017 and only the first 7 months of 2018 started with a negative trend. Rates in 2018 started from $16,000/d in January 2017 going quickly to $13,750/d in April and showing just a small recovery to $14,000/d in July. Rates for MR2s bottomed in October 2016, slowly recovered up to $14,500/d recorded in September 2017 and since then started another negative period reaching $13,750/d in July 2018.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

07/2008 07/2010 07/2012 07/2014 07/2016 07/2018

USD

/day

Product Tanker 1 Year Timecharter Rates - last 10 years (August 2018 ; basis modern standard unit ; estimated monthly avg. ; in USD/day)

LR2 MR2

banchero costa


Newbuilding prices bottomed during the first half of 2017 at their lowest levels in almost 15 years. From the second half of 2017 some increase were recorded with prices for MR2 in July 2018 increasing 11 percent y-o-y, while prices for LR2s grew in the same month over 9 percent year on year.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

07/2008 07/2010 07/2012 07/2014 07/2016 07/2018

USD

mln

Product Tanker Newbuilding Prices - last 10 years (August 2018 ; indicative average ; monthly data ; in USD mln)

LR2 MR2

banchero costa


MR2 second hand prices bottomed at the beginning of 2017 at $21 million for a 5 years old unit. Since then a slightly positive trend started reaching USD 26 mln in July 2018, around 9 percent up year on year.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

07/2008 07/2010 07/2012 07/2014 07/2016 07/2018

USD

mln

Product Tanker 5 Years Old Secondhand Prices - last 10 years (August 2018 ; indicative average ; monthly data ; in USD mln)

MR2

banchero costa


During 2017 there were 104 secondhand transactions in the product tanker sector, 9 less than during 2016. During the first 7 months of 2018 we’ve recorded 105 product tankers changing hands. Most of the sales were for MR2s with 61 deals, followed by MR1s with 20 deals, LR1s and LR2s with 12 sales each for a totatal amount of 5.9 mln dwt.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

07/2017 09/2017 11/2017 01/2018 03/2018 05/2018 07/2018

mln

DW

TProduct Tanker Reported Secondhand Sales - in DWT

(August 2018 ; all coated units between 30-119,999 dwt ; in number of units)

MR1 MR2 LR1 LR2

banchero costa


Final Words (summary and conclusions)

banchero costa


The product tanker sector recorded a terrible 2017 and also the first half of 2018 maintained the same trend, except

for newbuilding and secondhand prices that turned their trends. The persistence of a low market was mostly caused by

the large numbers of new vessels still delivered in 2017, around 138 units, that worsened a market that already was

oversupplied. All the sectors suffered a painful year, however the decline was particularly strong for LR2 vessels, whilst

MR rates registered slightly better results mainly due to their flexibility and slowing deliveries.

LR2s on the MEG/Japan route averaged $7,600/d in 2018 so far, compared to $8,100/d in the same period of 2017.

The earnings for MRs on the South Korea/Singapore route averaged $4,900/d compared to $5,000/d in 2017.

The MR market in Atlantic showed the MR Atlantic triangulation averaging $8,500/d in 2018 so far compared to the

Pacific triangulation at $9,100/d recorded in the same period.

After a strong rebound in 2015, when demand growth increased 6 percent, consumption of oil products remained fairly strong with a 4.4 percent in 2016 but lower in 2017 with juts 1.6 percent. In 2018 and 2019 a slightly better growth, of respectively 2.1 and 2.2 percent, is expected, both below the expected fleet increase.

Global refining throughput reached a record high during Q4 of 2017 at 81.7 million bpd but fell slightly in Q1 of 2018 at 80.8 million bpd, still up 0.6 million bpd Y-o-Y. Q2 has been closed on the same level, still up 0.5 million bpd Y-o-Y, while in Q3 2018 runs are expected to jump at 82.8 million bpd (+1.3 million bpd Y-o-Y).

On the supply side, the total product tanker fleet grew 4.6 percent in 2017, fleet growth is slowing, but especially in

the LR2s segment, is still excessive. Expectations for 2018 are for an overall growth of around 2.7 percent, with MRs

growing at just 1.7 percent, this is very encouraging, especially in case demand experiences a good growth, we could

well see some reduction of the oversupply that will lift rates. At the same time, even still low, 44 new orders new

orders signed in the first 7 months 2018, similar to 49 orders completed in the same period of 2017, could remain an

element of risk for the market. The new orders have been mainly stimulated by newbuilding and second hand prices

close to their lowest, guaranteeing good opportunities for the owners.

banchero costa


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Reports can be produced on a wide range of shipping markets including dry bulk, tankers, gas & containers. In addition in-depth reports can be produced on specific commodity markets.

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head office: via pammatone, 2 16121 genoa (italy)

phone: + 39-010-[5631-1]

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Documents

Product Tanker Outlook - banchero costa