Spectre of oversupply haunts chemical shipping

The shipping fleet trading in chemical and vegoil markets is expected to accelerate at a much faster pace than demand, weakening earning prospects, according to Drewry.

Drewry estimates that tonne-mile demand will grow at 2.9 per cent in 2017, and the fleet trading in chemicals/vegoils will expand by 9.5 per cent by the end of this year, the highest fleet growth observed in recent years.

The chemical shipping market is facing severe oversupply because of new deliveries and swing tankers returning to the chemical/vegoils trade and seeking employment in this market. The orderbook still contains 9.0 per cent of the existing capacity to be delivered by 2021 and the deliveries of MR tankers will also contribute to rapid growth.

Even though the Ballast Water Convention will take effect in 2019, any expected surge in demolitions by that time will not be enough to pull the market out of its current gloomy state. Combined with a bearish outlook for the CPP market, Drewry expects the oversupply situation to continue for the next two years which will squeeze freight rates on major routes.

Tonne-mile demand is expected to edge down from 2018. Organic tonne-mile demand growth is expected to decline from 6.0 per cent in 2016 to 3.7 per cent in 2017, while inorganic demand is likely to follow the same trend – a fall from 7.3 per cent in 2016 to 1.2 per cent in 2017. As a result, long-haul routes might face challenges in the next few years.

“Although vegoil volume will support the market, weak demand for chemical products during the summer lull and the bearish CPP market continue to encourage swing players to return to the chemicals/vegoils market, reducing freight rates and pushing up lot sizes,” said Hu Qing, Drewry’s lead analyst for chemical shipping. “The effect of the latter will reduce not only the number of vessels needed, but also the opportunity to find cargoes in the spot market. 

“This quarter freight rates on major routes are facing challenges as there are few drivers to prevent the continuing trend of declining freight rates.”

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