12 oil tankers, 4.5 billion yuan! Yangtze River Shipbuilding's reserved berths were 'cleared overnight'.

Yangzijiang Shipbuilding's decision to forgo increasingly risky container ship orders and retain limited delivery slots for existing orders quickly paid off with its conservative approach.

According to TradeWinds, Yangzijiang Shipbuilding recently signed letters of intent with four European shipping companies for the construction of a total of 12 product tankers. Specifically, this includes: four 74,000 DWT LR1 tankers ordered by Norwegian shipowner Hafnia; two LR1 and two 114,000 DWT LR2 tankers from Greek shipowner Metrostar Management; and two LR2 product tankers each from Greek shipowners Pantheon Tankers and Union Maritime.

The LR2 tankers will use a design from Shanghai Ship Research and Design Institute (SDARI), with each costing approximately US\$62 million; the LR1 tankers will use a design from China Shipbuilding and Offshore Engineering Design Research Institute (MARIC), costing approximately US\$50 million each. If all 12 new ships are confirmed, the total value would reach US\$648 million (approximately RMB 4.47 billion).

Sources say that due to strong demand for this type of vessel and an earlier delivery date of 2025, Yangzijiang Shipbuilding's tanker delivery slots were sold out "overnight."

It is understood that Yangzijiang Shipbuilding was originally competing with Hyundai Heavy Industries of South Korea for an order of five LNG-powered new Panamax container ships from Evergreen Marine, and had reserved delivery slots for this. However, Evergreen Marine ultimately chose to order from Hyundai Heavy Industries, signing a letter of intent earlier this year for five 15,000 TEU dual-fuel container ships, each costing approximately US\$185 million, for a total of US\$925 million. This freed up Yangzijiang Shipbuilding's 2025 shipyard capacity.

According to Yangzijiang Shipbuilding's financial report released in February this year, the group received a total of 50 new ship orders in 2022, with a total value of US\$4.43 billion, more than double its annual order target of US\$2 billion. In addition, from the beginning of 2023 to the present, Yangzijiang Shipbuilding has received orders for 14 vessels, including 10 50,000-ton MR product tankers and 4 80,000-ton self-discharging vessels. As of now, Yangzijiang Shipbuilding has an order backlog of 149 vessels valued at US\$11.03 billion.

Affected by the Russo-Ukrainian War, the tanker market has continued to rebound since 2022, with spot freight rates rising and bringing strong returns to tanker owners. On the other hand, the tanker order backlog is at a historic low; Clarkson data shows that the current tanker order backlog accounts for only 3.92% of the existing fleet. Platts predicts that continued demand growth is likely to far exceed the growth in global supply capacity, and the tanker sector may experience rising freight rates due to supply shortages.

BIMCO predicts that the growth rate of tanker market demand in 2023 and 2024 will be greater than supply, and spot freight rates, time charter rates, and second-hand vessel prices will all increase throughout the next two years. Specifically, the demand for crude oil tankers in 2024 will increase by 4.5-6.5% compared to 2022, while supply will decrease by 0.6%; at the same time, the demand for product tankers will increase by 6-8%, and supply will decrease by 0.7%. In addition, it is expected that the EU's ban on Russian oil and refined oil products will increase average sailing distances by 3-4%, which will increase tonne-mile demand.

Shipbroking firm McQuilling Services also predicts that sanctions against Russia will exacerbate the growth in demand for product tankers, especially in the LR segment, with the average daily earnings of LR2 tankers reaching US\$56,000 in the next three years, 58% higher than MR tankers.

According to BIMCO's forecast, in 2023 and 2024, the growth rate of crude oil tanker demand will exceed supply by 2.5-3.5%. The product tanker market will be even more promising, with demand exceeding supply by 4.5-5.5% in 2023 and 2-3% in 2024. BIMCO believes that the tanker market will experience a period of sustained strength unseen since the 2008 financial crisis.

BIMCO points out that with the significant reduction in the tanker order backlog, shipowners are enjoying sustained profits, and newbuilding orders may become active again. If container ship and LNG ship orders slow down, and the forward order book of shipyards decreases, newbuilding prices may even fall slightly. This will provide a window of opportunity for tanker owners, allowing them to order new types of vessels designed to meet future decarbonization regulations.