Product tankers – workhorses in the petrochemical products transport market

By Marek Grzybowski

Transport by product tankers has recently decreased in some markets. However, the demand for product transport remains due to the demand from the chemical industry and transport. The demand for transport by this type of tankers also remains due to the need to cover longer routes. The threat of Houthi attacks in the Gulf of Aden has increased demand for ton-miles traveled by industrious product fleets.
But the role of these tankers in the market for transporting refinery and chemical products is still very important, and in some cases cannot be overestimated. They are essential in the functioning of many industrial clusters, such as the chemical cluster in Antwerp. We wrote about it here. 

And these are not seahorses, but these tankers play the role of “work horses” on many routes, according to Gibson brokers. In their tanks, petroleum products such as gasoline, kerosene and diesel, as well as liquid products from chemical factories, including methanol, benzene, toluene and alcohol, reach their destination ports.
– The volume of maritime trade in clean products surprisingly decreased in the period from January to May 2024, with total loading -3.6% y/y to 325.1 million tonnes – reports Banchero Costa based on LSEG data.

In the period January-May 2024, shipments of clean products from the Arab Gulf countries increased by 1.5% y/y, from the EU they decreased by 3.4% y/y, and deliveries from the USA decreased by 0.2% y/y.
Russian refineries delivered 9.8% fewer products to the market than in the same period last year. Manufacturers from ASEAN countries exported 2.5% more products, from South Korea they delivered 0.2% less, from India they delivered 1.5% less y/y, and from China 0.9% less y/y.

Changes on the supply and demand map
Banchero Costa Research analysts found that the slowdown in industry activity resulted in a decline in product imports by EU countries this year. by May by 8.2% y/y. The ASEAN economy, in turn, increased imports by 4.9% y/y.

The Arab Gulf countries reduced imports by as much as 16.0% y/y, and West Africa demanded 22.0% less y/y. South American countries increased imports of products by 0.8% y/y, but the Australian economy increased imports by 18.5% y/y. The United States imported 27.7% fewer products by sea than in January-May 2023.
The increase in ton-mile demand kept older MR tankers afloat. In their latest weekly report, Gibson brokers said that “MR tankers, a workhorse in both the clean and occasionally dirty markets, represent the largest segment of the tanker industry.”
They believe that tankers of this type are “essential to ensuring the functioning of the market and therefore a detailed analysis of MR supply is crucial to understanding the dynamics of the tanker market.”

Product tankers are getting old
The main threat to this market segment is that “MRs are rapidly aging, with almost 30% of the existing fleet comprised of vessels between 15 and 19 years of age,” notes Gibson. The average age of product carriers in 2024 is the result of an uneven supply of this type of tankers.

Banchero Costa calculates precisely: “At the beginning of the 21st century, significantly more ships were built compared to the 1990s. 17% of the merchant fleet are over 20 years old, 30% are 15-19 years old, 19% are 10-14 years old, 22% are 5 years old -9 years old, while 12% are less than 5 years old.”
In the second half of the 3rd decade of the 21st century, a significant number of tankers will soon exceed 20 years of age. Gibson warns that “this will limit their commercial opportunities in the regions where they typically operate. While the fleet is aging, we have also seen an increase in order activity.”
The situation will improve at the end of the third decade, because last year 114 units were ordered, and this year another 71, which is more than half of last year’s number. As a result, MR’s order portfolio currently includes nearly 230 vessels, representing 13% of the existing fleet, state Gibson brokers.

Prices for new ships are rising
Market imbalance and restrictions in access to shipyards resulted in higher prices of units ordered this year. In May 2024, indicative average prices for new LR1 tankers (60,000-81,999 dwt) were estimated at approximately USD 57 million. They were higher by 7.5% y/y. Approximate average prices for MR2 (43,000-59,999 dwt) were estimated at approx. USD 51 million and were higher by 11.4% y/y, MR1 (30,000-42,999 dwt) was contracted at shipyards for approx. USD 47 million and it was price higher by 7.3% y/y.
According to Gibson analysts, “despite the increase in planned deliveries in 2025 and 2026, the number of tankers in the 15-19 year range will still be higher.”

About 13% of the fleet currently in service is 20 years old or older, and many of these vessels are finding alternative employment opportunities outside the conventional market. This euphemistic term means that some of the ships found employment in shadow fleets and in the market for transporting oil from Russia, Iran and Venezuela, countries subject to US and EU sanctions.
Shifting ships to the shadow fleet resulted in continued high freight rates. The costs are borne by customers. Product prices on the secondary market are also stable. Indicative prices for a used 5-year-old MR2 tanker in May 2024 were estimated at approximately USD 45.9 million.

– We currently estimate that 181 of the approximately 1,720 vessels in the MR fleet operate exclusively in Iran, Venezuela and Russia. This significant part, constituting approximately 10% of the fleet, is so significant that its absence from the mainstream product trade can be felt – say Gibson’s brokers.

High freight
As a result, “Since the beginning of the year, global profits of product tanker operators have averaged PLN 35,000. USD per day compared to 31,250 thousand per day in 2022/23. For comparison, average freight reached $13,500 per day between 2010 and 2019.” Therefore, it can be assumed that higher freight rates will remain until the war between Russia and Ukraine ends and sanctions on oil from Iran and Venezuela are maintained.
It will take approximately 3 to 5 years for product tankers to equalize the supply of cargo space. In 2024, we will experience a weak supply of ships. Banchero Costa found “that the net increase in the fleet of tankers with a deadweight capacity of 30,000-120,000 dwt will slow to around 2% y/y in 2024 and then rebound to around 3.6% in 2025.”
The LR2 fleet will grow faster, by 4.2% y/y in 2024, and then by 8.0% in 2025. The LR1 fleet is expected to remain at the same level in 2024, with an increase thereafter (in dwt) by 1.3% in 2025. The MR fleet is expected to grow by 1.5% y/y in 2024, followed by more ships from shipyard docks (in dwt) by 2.3% in 2025.