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How bulker conversions will impact the tanker market
While the tanker market has gone from strength to
strength on the back of sharply lower oil prices and
moderate fleet expansion, the dry cargo market, in
general, and capesize bulk carriers, in particular, are in
the doldrums. The dry bulk orderbook for 2015 and
2016 delivery remains high, in particular for Capesize
vessels. Is it realistic to expect that a significant portion
of these large bulk carriers are going to be converted to
Aframax or Suezmax tankers?
Scorpio announced recently that it had reached
agreements with shipyards in South Korea and Romania
to modify six newbuilding contracts for Capesize bulk
carriers into newbuilding contracts for LR2 product
tankers. It has been reported that several other owners
are currently negotiating with shipyards as well. Is this
the beginning of a trend?
We caution against expecting too many additional
conversions to come to fruition. For these deals to
materialize a number of elements need to fall into place.
Firstly, the yard needs to be able to build and have
current designs for both bulkers and tankers. Secondly,
these yards need to be willing to switch the order. This
will probably be possible only for owners with a certain
stature that have ordered a series of vessels at that yard.
The shipbuilder will want to ensure that these
conversions do not significantly interrupt planned
construction and procurement. Shipyards are also keen
to maintain their profit margins when changing from one
vessel-type to the other.
A look at the current Capesize orderbook will help us to
scale the possible impact of these conversions. We
January 23
2015
POTEN TANKER OPINION
HOUSTON / NEW YORK / LONDON / ATHENS / SINGAPORE / GUANGZHOU / PERTH
defined a Capesize bulk carrier as a vessel of at least
120,000 dwt. As of January 1, 2015 there were some 336
Capesize bulk carriers on order. For 69 of these vessels
(about 20%) construction has already started, so
conversion to another vessel type is no longer an option.
Even if construction has not yet started, a switch to
another vessel type is only feasible if the same yard has
an existing design and a proven track record of building
such vessels. A careful review of the shipyards where
these capesize vessels are on order shows that out of the
38 yards only 11 are also (capable of) building similar-
sized tankers. Excluding these “dry cargo only” yards
removes another 104 vessels from the conversion pool.
Fig. 1: Capesize vs Suezmax Spot EarningsA Mulligan for Capesize Owners?
Next, we looked at the owners involved. If one assumes, which we believe to
be reasonable, that the owners that will most aggressively push for
conversions are the ones with experience in both dry bulk and tanker
markets, the field is whittled down even further, since 113 of the Capesize
vessels remaining on order are owned by dry cargo specialists.
Based on the above analysis we estimate that out of the 336 Capesize vessels
currently on order, about 50 ships are potential conversion candidates and a
significant portion of these orders are already subject to active negotiations.
More conversions will likely be negotiated, however, at the moment, we
don’t expect that this development will become so widespread that it will
pose an immediate threat to the health of the tanker market.
Fig. 2: Capesize (> 120,000 dwt) Orderbook Analysis
Source: Poten and Partners
Source: Baltic Exchange