ECONOMY

Tankers market could lose steam

Last year the tankers market showed remarkable resistance to pressure despite the constant increase in supply as the global fleet grows. But the rise in demand, which has continued for several years, may well be coming to an end. The global fleet grew in 2006 as some new very large crude carriers (VLCCs) entered the market (unlike suezmax or aframax tankers) and China’s economic growth showed an impressive rate, so that the market enjoyed average daily revenues of $38,000 and broke records held for many decades. International organizations have predicted and still expect a rise in demand of 1.7 percent in 2007, supported by the growth mainly of developing countries. There are key factors, such as the unhampered growth of China and the stagnation in the development of US refineries, which ensure the increase in consumption of crude oil and products. So far the tankers market has been quiet, with most routes and types of ships reporting lower prices last week from the week before. Yet it is in supply that the problem lies, as shipowners have handsomely invested their exceptionally high profits. Even if oil demand this year grows beyond any expectation, the reluctance for scrapping of ships and the re-entry of capital for new investment could prove fatal for the future of shipping. There is another view which suggests that the excessive supply of capacity in tankers should not be overestimated at this stage of economic development, given the constant growth of China and the entry of India effectively in the same context, along with the rise in demand from other developing countries.