Japanese Owners Rush to Order VLCCs to Cash in on Low Prices

VLCC contracting is set to pick up despite a weakening trading market, with Far Eastern cargo interests ready to take advantage of low newbuilding prices for fleet renewal.

News ID: 71582

Date: 15 January 2017 - 15:54

Recent ordering from Japan looks set to continue with local reports indicating that yards and owners are hopeful of concluding negotiations for at least six VLCCs and have set a target for the end of the fiscal year in March, MANA correspondent reported.

Sources suggest the deals are likely to be for delivery between 2018 and 2019 and will be backed by charter contracts with Japanese oil companies..

The deals are being rushed through this fiscal year because the Japanese owners’ stretched financial resources have meant they have refrained from investing in new tonnage over the past couple of years and are behind on their fleet renewal plans.

Japanese operators and oil companies usually trade VLCCs up to 15 years old, and owners are looking to replace ageing tonnage before they have to fit ballast water treatment systems, which will become mandatory from September this year. Such systems can cost up to $5m, an investment that is difficult to justify or afford at current spot rates.

There have been indications that Japanese operators are now looking to catch up on their fleet renewal with JX Ocean and Kyoei Tanker Co placing orders for three VLCCs at Japan Marine United’s Ariake Shipyard last August.

Other potential Far Eastern orders include up to four VLCCs from Hyundai Merchant Marine (HMM) in South Korea.

The deal could take advantage of state-backed funding to help support the country’s ailing shipbuilding industry.Clarksons currently values VLCCs at $84m this year, down another 1% compared to last year’s average price of $84.5m.The VLCC orderbook stands at 95 vessels, accounting for 14% of the total fleet, but there is a heavy delivery schedule in the first three months of this year that could see it take a dip.

About 16 VLCCs will be delivered between now and March out of the 40 scheduled for delivery throughout 2017.