Viewpoint: Lower demand to weigh on VLCC market

Market: Freight
17/12/24

The VLCC tanker market is facing downside risk moving into 2025 — after a lacklustre fourth quarter of 2024 — as a result of shrinking Chinese demand and the continuation of the Opec+ crude production cuts.

Opec+ has delayed the unwinding of 2.2mn b/d cut once again to April 2025, and this may be pushed further as it "can be paused or reversed subject to market conditions". This would contribute to keep crude tanker demand and rates under pressure in 2025, especially as the Opec+ group will also keep in place two other sets of cuts by an additional year to the end of 2026.

VLCC rates in 2024 have also been under significant pressure in the second half of the year because of a slowdown in Chinese oil demand. China is the key destination for VLCCs. It accounted for nearly 40pc of all VLCC voyages in 2024, with Japan and South Korea accounting for another 20pc.

The IEA has kept its oil demand growth for China unchanged at 150,000 b/d for 2024. This is far below the 710,000 b/d it was forecasting in January 2024. And this trend is likely to continue in 2025, being partly the result of an increased uptake of electric vehicles, LNG-powered trucks and high-speed rail, according to the IEA.

China has also cut export tax rebates on oil products to 9pc from the current 13pc, effective 1 December. This may lead to a decrease in Chinese oil product exports, as players may be discouraged by the VAT rebate cuts and reduce Chinese crude imports, weighing on tanker demand.

VLCC rates will receive little support from the newbuild market this year. Tankers deliveries in 2025 are scheduled to be lower, with a 1.2pc increase in overall tanker fleet growth, but ship scrapping rates are slowing down. This should keep tanker availability more or less steady in 2025, but rates could come under pressure from an ageing fleet. The average age of a tanker is now 13.2 years. This increase in vessel ages may lead to further rate discounts — which are typically attached to older tankers.

The re-election of Donald Trump as US president could have some impacts on the freight markets heading into 2025, but it is unlikely to offer support to the VLCC segment.

Trump has planned to ramp up the US's crude production over the course of his second term. This has brought some market participants to question the extent of the increases and the knock on effects.

The US primarily uses Aframaxes and Suezmaxes for crude exports and if the new government's policies lead to an increase in crude exports then the volumes would most likely be carried on tankers in these segments. The US also typically exports more to Europe than to Asia-Pacific, which would also mean a proportional increase in the smaller vessel classes rather than VLCCs.

The VLCC market will most likely remain under pressure, particularly early in 2025. And some VLCC shipowners have already started to widen their market scope onto traditionally Suezmax routes from west Africa to Europe to increase earnings. But having VLCCs competing with smaller classes could lead to a more sustained slump in other segments, as it would increase tanker supply on these routes and ultimately weigh on rates. This is because increased competitions for cargoes could lead owners to reduce offers in order to secure work.

By Rhys van Dinther

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17/12/24

Alabama lock to remain closed until spring

Houston, 17 December (Argus) — The US Army Corps of Engineers (Corps) has determined that the main chamber of the Wilson Lock on the Tennessee River near Florence, Alabama, will remain closed until spring 2025 as repairs continue. The Wilson Lock, the first lock on the Tennessee River, closed on 25 September after cracks in the lock gates on both the land and river sides were discovered. The main lock was closed to prevent further damage in the main chamber, although the auxiliary chamber was kept open for navigation. The Corps had been eyeing an earlier opening date for the main chamber since the start of November. Although months of repairs have taken place, the Corps resolved to keep the main chamber closed to preserve the lock and maintain personnel safety. The Corps, in partnership with the Tennessee Valley Authority (TVA), is still assessing the root cause of the cracking. A second de-watering of the gate is scheduled for the first three months of 2025 to repairs. No official date has been set for the lock reopening, although some barge carriers have heard of a late April opening date. A regular 15 barge tow has endured 5-6 days of delay through the lock on average, according to carriers. The Corps' Lock Status Report on the Wilson Lock reported a nearly two-week delay for tows navigating through the lock. This has been costly for shippers by forcing them to pay delay fees. Wilson Lock is the second lock in Alabama to undergo a lengthy closure this year. Most lock and dams along the US river system are over 70 years old, likely resulting in more closures in the coming year. By Meghan Yoyotte Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: VLGC market faces uncertainties in 2025

16/12/24

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16/12/24

Viewpoint: VLGC market faces uncertainties in 2025

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US rail group optimistic about 2025 rail demand

12/12/24

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12/12/24

US rail group optimistic about 2025 rail demand

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Mediterranean VLCC loads Aframax cargo amid low rates

12/12/24

News

12/12/24

Mediterranean VLCC loads Aframax cargo amid low rates

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