Chemical Tanker Owners Seek Fleet Renewal

Despite the easing of chemical tanker earnings in Q2, owners are still placing newbuilding orders. After a period of strong vessel earnings and high asset valuations, spot and time charter rates have fallen but remain at elevated levels. Despite higher costs of capital and uncertainty over future fuel technology, ordering has picked up steadily in the shipyards since Q1 and into Q2, according to MSI’s Chemical Tankers Q2 2023 report.

The decrease in one year time charter rates, freight, and asset prices for chemical tankers, which began in Q3 2022, has led to an increase in newbuilding orders. The high earnings that were enjoyed over the past year were not solely due to high volume demand but were also a result of disruptions in the tanker market caused by the war in Ukraine and the subsequent tonnage draw from the clean petroleum products (CPP) market. This release of swing tonnage from the CPP market has affected one year time charter rates, with fewer long-term charters executed in a period of uncertainty.

Although spot rates have softened for chemical and product tankers in recent weeks, owners have still been able to achieve healthy returns. Bunker prices have eased ahead of the spot market declines, allowing for profitable operations. While newbuild contracting activity was initially slow at the start of 2023 due to high slot costs and long lead times at shipyards, there has been an uptick in contracting during Q1. This momentum carried into Q2, with a total of 18 chemical tankers, with an aggregate 252,000dwt, being contracted by mid-June.

MSI expects earnings for product tankers to ease in H2 2023 and into 2024 but remain at elevated levels. Some owners may react to the softening rates by scrapping older tonnage, which will support the overall sector employment rate. Rates and earnings are expected to remain above historical averages in the chemical tanker industry over the next year.

Overall, despite the easing of chemical tanker earnings, owners are still optimistic and placing newbuilding orders as spot and time charter rates remain at elevated levels. The release of swing tonnage from the CPP market has affected long-term charters, but owners are still achieving profitable returns.

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