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“Crude [oil] demand from China and India [is] outpacing declining demand in the US and Europe,” says Clarksons, the world’s largest shipbroker.
The Asian-led good news continues, with Clarksons projecting an increase of 2.1% year on year in crude tanker tonnage demand for 2012.
This might make for a positive note on which to end Lloyd’s List’s week-long series on Europe’s crisis, but enter more bad news from the eurozone emergency, adding to the looming threat of tanker fleet growth that will create new overcapacity.
As it is with the tanker market, so too is it with dry bulk. Demand for energy is a key indicator in the industrial activity and construction sectors that drive dry bulk demand.
Here, BHP Billiton chief executive Marius Kloppers is clear on Europe’s role: without a “sustainable solution to the European debt crisis, global uncertainty will remain”, he says, that “will continue to have an effect on the demand for resources in the short term”. As well as tankers, that will include copper, coal and iron ore.
Note how Mr Kloppers draws a link between European uncertainty and worldwide demand. The eurozone issue is therefore a global one, which can dampen good news from Asia.
In May, Bloomberg reported a similar link for the tanker trades, with the price of oil falling below $94 a barrel in New York for the first time since December as Europe’s debt crisis worsened.
That makes it important to understand how things could get worse inside Europe.
Take oil. “The threat of a collapse of the eurozone would have an enormous impact on oil demand in Europe and this fear has led to the euro falling against the dollar in recent weeks, making it effectively more expensive for eurozone members to purchase dollar-priced barrels,” says Clarksons.
“Oil demand in total OECD [Organisation for Economic Co-operation and Development] Europe is projected to decline by 2% year on year in full-year 2012.”
The point is that Europe may spoil the party. “The US and Japan are leading a fragile developed-world recovery that could be blown off course if Europe fails to contain the damage from its debt-burdened states,” stated a recent RS Platou report.
“Although the OECD economies are showing signs of relief, the euro crisis could still come out of control, with Greece struggling to remain solvent and Spanish banks in need of recapitalisation.”
Why this might be comes down to Europe’s still-mighty market share. Although Asia’s energy demand is growing, the overall volume of Asian energy imports lags behind those into Europe and the US.
Global seaborne crude import data from Clarksons shows that the US share of global crude imports (16%) and the EU share (23%) combined continue to outweigh the combined shares of China (14%), Japan (10%) and other Asian countries (7%).
Even though China is a growth area, if the European Union and US pick up, it would mean happy days for the tanker market.
But here comes the dampener: “Imports of crude are declining in the US and in Europe also,” First International chairman Paul Slater noted in a recent letter to Lloyd’s List.
For tankers and dry bulk alike, the eurozone crisis is essentially a general demand-side problem, part of a wider, increasingly tiresome European recession.
Much sexier have been oil supply-side disruptions, such as the rebellion in Libya and sanctions against Iran. Libya’s rebellion ended a dictatorship. Sanctions against Iran offer international drama.
Nevertheless, tanker drama may ensue. While tanker owners cannot back off the important European market, the key is to watch the aframax sector.
Aframaxes, a small tanker class, service the North Sea and Mediterranean.
In the summer of 2009, in the midst of the global downturn, lower European demand for oil hit the Mediterranean aframax market hard, adding to already reduced European oil demand in warmer weather and reduced refinery capacity due to maintenance closures.
A double-dip recession in Europe would repeat that effect, making the aframax market a key indicator for the Continent’s general economic health.
There is opportunity, however. One counter-intuitive benefit of the eurozone crisis could be that the reduced availability of bank loans in Europe will ease overcapacity in the tanker sector, eroding fresh newbuilding orders.
In that sense, says former ABN banker Ted Petropoulos, Europe’s crisis is “not necessarily a bad thing for shipping”.
Overall, falling energy and dry-bulk demand are risks but opportunity will come from watching the factors above and from keeping an eye on a potential short to medium-term uptick in European demand stimulated by any French-inspired spending.
“It is growth that will allow us to solve a big part of our problems,” French President François Hollande told a recent press conference in Paris.
Mr Hollande has been demanding growth, based probably on stimulus and infrastructure spending.
However, that is not in any way a definite recommendation to look west, as German austerity will not be going anywhere any time soon. Whether or not austerity and growth can co-exist remains to be seen.
Overall, Asia is still the dynamic place to do business, especially for tankers and in particular for VLCCs. One example: in 2006, 34% of the Middle East to China trade lane was on VLCCs owned by Europeans; in 2010 that figure had fallen to 16%.
Nonetheless, alongside the Asian dawn, both the tanker and dry bulk sectors must recognise twilight in Europe.
Despite Mr Hollande’s best efforts, Europe’s malaise will continue to be a negative factor for global resource and energy demand.
www.lloydslist.com/drycargo
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