Monday, 25 October 2010

The good, the bad and the ugly story of the tanker market

Second-hand tanker values continue to remain strong, despite the spot market enduring one of the longest periods of poor earnings in decades. 

Vessels continue to change hands and some companies/owners are still willing to pay high prices, even though daily earnings for most tanker companies are well below operating costs. For example,  a modern five-year-old aframax has actually increased in value over the last three months and has now reached $47million. On the other hand, aframax time charter equivalent earnings have fallen to an average of $6,873/day in the last three months, compared with $16,873/day in the previous three-month period. And the picture gets even uglier for the large VLCC, where the  time charter equivalent earnings for operating  in the spot market have averaged only $3,788/day. 

In the light of still heavy supply coming up, the level of second hand prices should be somewhat surprising. TMN wants to blame a mix between creditors' interest to "extend and pretend" and central bank engineered liquidity for this phenomenon for now. Many market participants still think hard assets are the way to play. However, hard assets that earn negative carry for an extended period of time have only one way to go. 

                                             click on chart to enlarge

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