Continued slowdown in new-ship growth holds promises for chemical
carriers. Chemical tanker operators have a fairly high chance of a good year
in 2019 with bunker price averaging around current level. While chemical
seaborne volume may stay flat, increase in long haul vegoils shipments,
and lower new deliveries will all contribute to higher freight and operating
margin. ‘Smart’ operators, especially small ones, who explore tech offerings
may find digital-enabled cost competitive advantage over the long run.
SLOWDOWN IN SUPPLY CONTINUES (NEXT 2 YEARS)
Recent supply growth deceleration continues well into 2018, despite an increase in number of ships
mainly due to renewal of smaller sized fleet. The slowdown is interesting as it is expected to reach
a net negative growth next year. This was something that occurred in 2013, which unfortunately
motivated a premature but persistent new ship build-up that depressed chemical freight. But supply is
only one part of the chemical operators’ story.
BUNKER PRICES HOLD OPERATORS BY THEIR BALLS
Despite freight recovery this year, operators’ earnings are sliced further as bunker price (which could
make up half of operating cost) averaged another 34% higher than last year’s. We forecast a largely
stable average price for next year. But as we know of bunker price, it depends on crude. We do
expect price fluctuations to range bigger due to uncertainty and volatility impacting crude, and earlier
responses to Sulphur2020.
Here is the story: While chemical tanker owners might have themselves to blame for over building, 2014 crude collapse which caused bunker prices to slide did not just save them. No credits to the owners but it gave many chemical tanker operators their best performances since the 2008 financial crisis in 2015 when fuel oil price averaged around $300 per ton compared to above $600 in the previous years. Some continued to enjoy positive time-charter earnings into 2016 even with weakening freight due to high ship supply relative to the demand for it. But through no faults of the operators, bunker price played havoc and shot up over 40% on average for 2017, killing operators’ earlier joy completely. Without an effective bunker price hedging operation, operators earnings remain at bunker price’s mercy.