Tanker

A year of opposites

2020 will live long in the memory of market participants as rarely have seasonal norms been turned on their heads and extreme highs and lows been touched within the same 12 months. Although the impact of the Covid-19 pandemic cannot be underestimated, the impact of Saudi Arabia instigating an ill-fated brutal battle for oil market share against the backdrop of cratering global oil demand should not be forgotten. This proved to be the catalyst for the chaos which filtered into all tanker segments from small tankers to VLCCs and from which markets have yet to truly recover.

FRONT CORAL tanker, 157,522 dwt, delivered in 2017 by New Times SB (China), operated by Frontline.

67 TANKER TANKER MARKET OVERVIEW MARKET OVERVIEW

SpotTANK TankerER SPOT Time RATESCharter -equivalentTCE Earnings Extremely low crude prices also encouraged refiners to run at strong rates 2020 (-14 units y-o-y). Indeed, against this backdrop $/day *TD3C at $300,000/day over the second quarter. Considering the background of plummeting demand, and considering that global tanker demand remains $/DAY in October 2019 these products swelled inventories and tank tops came under extreme significantly below pre-pandemic levels, almost all 250.000 pressure at key terminals. Similar to the crude segment, this led to a large segments are currently overtonnaged. Considering our tranche of the CPP tanker fleet being secured under short time charters for projection that tanker demand will remain curbed this floating storage. Meanwhile, other waited for weeks or even months outside year, this suggests that something must give on the 200.000 key terminals for tankage to become available so that they could discharge supply side. To this extent we expect that a prolonged their clean . The impact of this cannot be underestimated as it period of extremely low hire rates will lead to an uptick helped to propel hire rates for CPP tankers into the stratosphere. in demolition, the cumulative effect of which should 150.000 support rates later in 2021. Indeed, if this were to Since late June, it has all been downhill for the tanker market. Tanker demand coincide with seasonally stronger tanker demand at dropped as Saudi Arabia swiftly halted its battle for market share while this 100.000 end-year, there may be light at the end of the tunnel. also saw the OPEC+ Alliance revert to their market management role and cut a record 9.7 mb/d of crude production. Both clean and dirty tanker

50.000 demand has collapsed in the wake of oil demand trending significantly below its pre-pandemic level. Meanwhile, the record oil inventories built over 1H20 are now being steadily drawn which is substituting oil imports Annual Tankers*tankers* deliveriesdeliveries Annual tankers* deliveries 0 for oil already in inventory. As crude prices moved higher in 2H20, this N° of 2019 2020 saw contangos in crude and product markets narrow and eventually return N° of ships to backwardation which, in turn, has driven traders to offload much of 450 their floating storage. In turn, this has hit the tanker market with a ‘double 450 VLCC (TD3C) Suezmax Basket Basket LR2 (TC1) LR1 (TC5) MR Atlantic Basket 400 Jan 2019 Jan 2021 whammy’ as volumes previously held in floating storage are replacing oil 400 imports while the tonnage is re-entering an overtonnaged tanker market 350 VLCC (TD3) -TCE Suezmax Basket - TCE Aframax Basket - TCE LR2 (TC1) - TCE LR1 (TC5) - TCE MR Atlantic Basket 350 and thus adding to the downward pressure on hire rates. As such, with very 300 few exceptions, hire rates trended at close to record lows over 2H20 with 300 no traditional 4Q bounce. 250 By mid-February, the world was waking up to the menace posed by Covid 250 MARKET OVERVIEW as it spread well outside Asia and initial projections of a gentle deceleration 200 As we turn our attentions to 2021 it is undeniable that the tanker market is 200 in global oil and tanker demand growth along the lines of the 2002-03 not in a good place with rates for many tankers currently plumbing multi- 150 The year started as 2019 had ended, that is to say, in SARS outbreak proved to be wide of the mark. As the world was starting to year lows. However, we suggest that the stars are starting to align which 150 100 chaotic fashion, as 0.5% sulphur bunker prices surged in be locked down, especially in the east, oil demand contracted at a rate of could provide some respite for owners later in the year. Nonetheless, as 100 the wake of tight supply while at many bunker terminals, knots, crude prices softened, and markets flipped into contango which was the tanker market continues its long and difficult road towards its pre- 50 50 ships experienced long waits while securing these fuels. music to the ears of traders and charterers. pandemic level there will undoubtedly be several bumps it will have to 4 Time Charter rates average 2020 0 On the other hand, following the roller-coaster ride, which Panamax 4TC rates and average 2020 negotiate first. 0 Against the backdrop$/Day of the Covid outbreak evolving into a full-blown 2000 2005 2010 2015 2020 was 4Q19, there were initially expectations that tanker $/day 2000 2005 2010 2015 2020 pandemic, early March saw Saudi Arabia fire the first shots in a battle for In early 2021, global oil demand remains around 7 mb/d below its pre-pandemic markets would weaken as the US and China improved their 16,000 oil market share after OPEC and their non-OPEC partners were unable to level but as vaccines are rolled out over the next twelve months, we project that Annual tankers* demolitions relations which saw the US withdraw the sanctions it had Annual Tankers*tankers* demolitionsdemolitions agree on their future output strategy. This saw Saudi Aramco hike their by the end of the year, this gap could be reduced towards 2 mb/d. However, previously placed on a major Chinese shipowner. 14,000 N° of ships crude exports by almost 3 mb/d to a hit record 10.2 mb/d in April with forecasting continues to be a hazardous business considering that significant 160 other producers12,000 swiftly following suit. As Saudi dipped into spot tanker uncertainty and downside risks remain, especially surrounding the speed 160 markets and hired a dozen VLCCs, this helped propel VLCC tanker rates and efficacity of the vaccine rollout. Furthermore, oil supply should steadily VLCC Suezmax Aframax LR2 140 back towards 10,000the stratospheric levels of $200,000/day seen over 4Q19. As 140 Total* oatingLR1 storageMR2 MR1 increase this year in tandem with demand. This will see OPEC+ gradually was the case at end-2019, high rates eventually filtered down to smaller increase their production and exports from 2Q onwards. Meanwhile, in the 120 Total* floating storage 8,000 120 Million barrels tankers. However, perhaps the biggest impact this huge increase in oil wake of Saudi Arabia’s recent decision to defend prices over market share, US 100 exports had, was that it saw global onshore storage capacity come under 100 Million barrels *includes crude, CPP and fuel oil 6,000 production is now forecast to rebound faster than previously expected which Crude Tankers Less than 12 months 12 months and longersevere pressure during the second quarter. In turn, this drove crude prices coupled with US – Chinese relations remaining steady should se more US crude 80 350 80 Product Tankers Less than 12 months 12 months and longerlower and by 4,000late April the mounting panic over access to storage was imported by China, thereby supporting mile demand. On the refining side, source: Alphatanker illustrated by NYMEX WTI prices dipping into uncharted negative territory. 60 300 NP runs will gradually pick up as the inventory overhang is depleted which will 60 2,000 add to CPP tanker demand. However, a caveat remains over how refining in As panicked traders looked for places to store both crude and products, 40 250 Europe will recover. If currently shuttered European plants do not reopen, this 40 tankers become 0increasingly attractive which saw a huge swathe of the could open the door to an increase in long-haul middle distillate imports from 20 200 fleet secured underJan short Feb (3Mar toApr 12May months)Jun Jul timeAug charterSep Oct deals. Nov Dec In turn, 20

Jan Fev Mar Apr May Jun Jul Aug Sep Oct Nov Dec East of . vessels used for floating storage led to less tonnage available for general 0 0 150 trading which helpedBP I-toTCA support spot hire rates during the early part of 2Q. Finally, the supply-side picture remains delicately poised. Last year saw 2000 2005 2010 2015 2020 XXX ? 2000 2005 2010 2015 2020 By this point China was starting to emerge from lockdown and its refiners 172 new tankers of 34,000 Dwt or above delivered, the lowest since 100 accordingly ramped up activity. Its hawkish traders also saw value in 2017 and 77 units less than 2019. Indeed, all tanker segments saw lower VLCC Suezmax Aframax LR2 extremely low crude prices and consequently upped their purchases from VLCC Suezmax Aframax LR2 50 deliveries year-on-year (y-o-y) bar Suezmaxes. That is not to say that fleet Panamax LR1 MR2 MR1 Panamax LR1 MR2 MR1 all over the globe, but especially the Atlantic Basin, which helped to add to fundamentals remain tight considering that demolition dropped off a cliff Panamax LR1 MR2 MR1 0 ton mile demand for all crude tanker segments from upwards. with a meagre 25 units of 34,000 Dwt or above sent to the breakers in Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan *34,000 dwt and above *34,000 dwt and above *34,000 dwt and above Jul-20 Jan-21 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Feb-21

source: Alphatanker 68 BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021 69 *includes crude, CPP and fuel CRUDE TANKER

year's slump and allow owners, who had invested in scrubbers, to pay back to China, Korea and Malaysia, which is uncommon for their investment. Thereafter came the spike which lasted from mid-March until Aframaxes as these barrels are normally transferred to end-May amidst the supply crisis provoked by the Saudi-led, OPEC+ decision larger crude tankers in the before sailing to to pump extra barrels. This saw Suezmax TCE earnings soar to $100,000/day Asia. Since rates for Suezmaxes and VLCCs were already for some trades / fixtures. However, the euphoria was short-lived when the sky high, Aframaxes were fixing at over $5 million for Covid-19 reality kicked in. Accordingly, markets dropped and hit the bottom these runs – a rare occurrence with owners locking in both in terms of demand and rates. This saw Suezmax earnings slump below huge returns. OPEX levels during the summer, from which they never managed to recover Rates on TD7 and TD17 reached equally bewildering with the usual rise in Q4 earnings missing last year. heights as their Mediterranean counterpart; the former After the spring spike, the vast majority of cargoes from the Middle East route reached a maximum of Worldscale 208, while TD17 Gulf were sold to China and shipped on VLCC's. This left few cargoes for the broke the TCE ceiling of over $116,900/day— both of which available Suezmax tonnage with no other choice for many than ballasting have set new records in comparison to the last six years. from the far east towards West Africa or directly to the Mediterranean and Looking forward, we expect the Aframaxes to follow a Black Sea, thereby adding more ships to already overpopulated markets. With similar path to the Suezmaxes and VLCCs, with 1H21 to Russian production curbed by the OPEC+ supply deal, Black Sea and Baltic remain fairly depressed until Covid-19 is slowly brought exports slumped too. Meanwhile, European refiners were supplied mainly by under control via the roll out of vaccines. One important West Africa, thus not helping ton-mile demand. factor to note is that 38% of the Aframax fleet is over 15 It was not all doom and gloom at end-2020 as Libya came back and quickly years old and the ratio of the existing fleet versus the hiked its production from 0.3 mb/d in early October to 1.2 mb/d in December. orderbook stand at only 10% which will not offset the By early 2021 exports were similar to levels seen at end-2019 prior to Force ageing fleet. Therefore, as economies restart there is a Majeure being declared in February 2020. still a glimmer of hope for better days ahead...

The global Suezmax fleet (excluding shuttle tankers) stood at 570 units by end-2020, 26 units higher year-on-year following 30 deliveries, 1 scrapping and 3 conversions last year. The fleet remains relatively young at around 9 the supply side was the catalyst to the gradual decline in rates. With tonnage years of age. The Suezmax segment is second largest crude tanker segment on CRUDE TANKERS over supplied, VLCC earnings plummeted and averaged $14,200/day over order with 39 orders placed in 2020 bringing it to a total of 69 ships due for 2H20, a great deal less than the $59,200/day averaged over 2H19. It must delivery over between 2021 and 2023. In comparison there are 80 VLCCs on VLCC also be noted that Chinese inventory draws over 2H20 helped cushion the order and 67 Aframaxes. The big question for 2021 remains scrapping. The supply deficit as Chinese oil demand started to recover, while most western last major scrapping occurred in 2018 as 21 units hit the beach. By 1 January, Last year, as with all crude tanker markets, the VLCC economies remained under significant pressure from Covid-19. 48 ships had reached 20 years old or more, which accounted for 8 pct of market can best be described as a tale of two halves. the fleet. Meanwhile, a further 113 units are between 15 and 19 years old. The first half was characterized by soaring returns with The impact of the demand for floating storage was especially pronounced in the With returns expected to remain low during 1H21, we can reasonably forecast the second half seeing the gradual and steady decline in VLCC segment due to the economies of scale afforded by these units Accordingly, scrapping to increase, especially in the wake of current buoyant steel prices. hire rates. the storage play became ever more attractive with many traders securing profitable period deals. We estimate that at its peak, 113 VLCCs were deployed The year was fraught with difficulties as market for storage over short to medium periods, accordingly, cutting tonnage supply. fundamentals soured and the operational framework Aframax changed for many shipowners. Faced with growing With storage a momentary shift in fundamentals arrived but when taking To say that the last twelve months have been a rollercoaster ride would fail concerns on obtaining approvals as well as crewing a forward view into 2021, it must be said that tonnage supply will play a to describe what has been a truly dizzying year for the Aframax markets. issues, many stakeholders in the VLCC market had vital role in the eventual recovery of hire rates back to pre-Covid levels. Looking South; a quick glance at the past six years shows us that TD19 — to adapt to a new set of constraints that challenged With expected tanker earnings likely to remain in a rut over the first three the Aframax Mediterranean benchmark route running from Ceyhan to Fos the norm. However, looking back at this historically quarters of 2021, we anticipate scrapping to increase significantly. What is — has never traded as high (Worldscale 233) or as low (Worldscale 55) as in significant year for freight, some positive can be drawn more, the VLCC order book for 2021 is historically low level with only 35 2020, thereby underlining the year’s deeply perplexing and radically binary from it, which in turn will shape the tone for 2021. units slated to enter the market. parkour. Meanwhile, TCE earnings reached vertiginous heights for owners, Morale was low at the year’s end. However, the annual Considering the challenges of 2020 and the changes these brought to freight breaking the $90,000/day mark — something unseen since 2015. The golden average VLCC TCE for TD3C (Ras Tanura -Ningbo) came markets, tough times lie ahead, and difficult decisions will be made. However, zenith meant that the negative freight returns that many Owners have grown in at $48,300/day, a sizeable increase on 2019 when it in times of hardship, the increased number of scrapped VLCCs may kickstart accustomed to during the last few months were somewhat easier to digest. averaged $39,600/day. Led by a strong 1H20 average fundamental change in the VLCC market that will be beneficial over the long From a more regional perspective, the most significant development in the of $82,400/day where VLCC demand rose exponentially run. Furthermore, the stars are aligning which should support the market in Mediterranean was the brisk comeback of onshore Libyan crude production, in light of the gradual east to west sweep of Covid-19, the second half of 2021 and beyond. Support will likely come from vaccine which, by the time of writing, is estimated at close to 1.2 mb/d. This marks the ill-fated battle for oil market share led by Saudi rollouts, changing political figures and as global GDP continues its long and a colossal turnaround from the scanty 70 kb/d the country dribbled out Arabia and Russia and the associated crash in crude oil difficult ascent back to its pre-pandemic level. until early autumn. Nevertheless, one must bear in mind that the country’s Tough times prices, we saw unprecedented purchases of cheap crude, comeback rests upon a delicate ceasefire between Libya’s warring factions, predominantly by Chinese interests. Accordingly, VLCC while the nation’s long-term sustainability and stability is contingent upon lie ahead, and tanker rates sky-rocketed on all main trade routes. Suezmax foreign investment… The road ahead is long and full of potential setbacks. difficult decisions Yet as key oil consumers entered prolonged periods of Early trading in January and February registered slightly better returns for Looking at the North Sea and Baltic, one of the defining moments last year lockdown, the global demand for oil started to contract owners compared with the previous year at around $40,000/day on average was April 2020. The increased production coupled with refinery cuts meant will be made sharply and fell by 16 mb/d year-on-year over 2Q20. To on TD20 (West Africa – UK Continent) and TD6 (Black Sea – Mediterranean) that Urals barrels were virtually impossible to place (we had seen glimpses this effect, OPECs decision to cut a record 9.7 mb/d from This sparked hopes that markets would finally recover from the previous of this in 2019). Out of 68 Urals stems in April, 20 were sold East of Suez

70 Picture: ZAKUM, VLCC tanker, 299,995 dwt, delivered in 2019 by Daewoo (Republic of Korea), operated by ADNOC. BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021 Picture: IONIC ARIADNE, Aframax tanker, 112,007 dwt, delivered in 2020 by Sumitomo Yokosuka (Japan), operated by Ionic Management. 71 TANKER TANKER PRODUCT TANKER - EAST PRODUCT TANKER - WEST

PRODUCT TANKERS – EAST LR1 On the other hand, the LR1s faired less-impressively following the initial onset were extremely volatile during the year, starting in the Mirroring the LR2 segment, the East of Suez LR1 segment enjoyed healthy of the pandemic, often having to compete with an under-demanded, over- low $60’s per ton and finishing in the high $30’s per ton. earnings over the first half of the year. TC5 runs between the Middle East Gulf supplied and short ton-miled MR market. It was also hit by the shortfall from This produced daily returns above $30,000/day at their LR2 and Japan carrying 55,000 mt peaked at WS 450 which equated to earnings West African deliveries which resulted in quicker-than-normal turnarounds in highest to $10,000/day at their lowest. the region, thus maintaining a steady supply of tonnage. We saw moments of of $110,000/day based on a roundtrip, historically high levels to say the Three factors impacted logistics during 2020: Firstly, major The East of Suez CPP market predictably had quite an exception on the LR1s, but this was often driven by a busy US export market least. Although the segment benefited less from the storage play factor, delays at some Brazilian ports. Secondly persistently low eventful year that can be separated into two distinct periods. which absorbed ballasters coming from both South America and West Africa – demand remained healthy with traders looking to deliver product on a more water levels in the Parana river throughout year and again demonstrating how some of the trade flows have been outside the norm. Firstly, the January - June period where earnings for an flexible size. The scrubber retrofitting of certain vessels meant tonnage was thirdly, a long-lasting strike during December. Despite LR2 hauling 75,000 mt of naphtha between the Middle out of the market during the first half of the year, thereby reducing capacity. The current LR2 orderbook stands at 12.6 % of the existing fleet and the current these issues, exports remained strong. East Gulf and Japan peaked at $120,000/day. Meanwhile, In addition, low bunker costs helped boost owners’ margins. However, Q3 and LR1 orderbook stands at 1 % of the existing fleet. freight for transporting 90,000 mt of ULSD from the Q4 saw product demand plummet with TC5 earning approximately $5,000/ Sunflower oil exports from the Black Sea reached about Middle East Gulf to the UK Continent peaked at $7 million. day at its nadir. It is difficult to be optimistic for 1Q21 as fundamentals do 4.5 million in 2020, approximately 20% more than not imply an increase in either product or tanker demand. On the other hand, the previous year. This trade employed about 125 MR1s The modern refineries in the Red Sea, the Middle East or MR maybe the East of Suez market will benefit from older European refineries or MR2s going to various destinations such as India, West Coast India, with at least 400 kb/d of capacity each, cutting runs or closing and pick up the slack of those missing volumes. The year did start fairly positively with owners feeling that finally this was China, the Middle East Gulf and Northwest Europe. were a big factor behind the spike as low crude prices and going to be the start of something great but as the majority of the world high refining margins encouraged these plants to maintain went into lockdown due to Covid-19 during February – March, the global throughputs at close to full capacity. Furthermore, the MR demand for oil plummeted. During spring, the main topic of conversation wide contango in product markets encouraged traders to was storage. Following the crash in oil prices, traders and oil companies store products on ships. Due to their improved economies What a year it has been for the MR market in the Middle East. Of course, decided it was time to store oil until prices would start to rebound. The of scale, LR2s were the main beneficiaries of such storage as with other segments, the most important factor was Covid-19. The chaos demand for storage took out a large supply of tonnage from the spot market plays. Eventually this created a shortage of tonnage. which ensued propelled the market to the highest levels we have seen in for fairly long periods and the highest recorded rate fixed on TC2 was Some storage deals were concluded at rates in excess of many years. Indeed, some MR owners have posted their highest earnings ever. 37,000 mt at Worldscale 280 which gave owners a healthy TCE of about $50,000/day. For example, at its peak a Middle East – UK Continent voyage saw rates hit $45,000/day. It has all been downhill from there and since July – August we $4 million which equated to TCE earnings of $80,000/day. However, as global After the summer kicked in, the picture turned gloomy with have rarely seen TC2 rates exceed WS 100, with the lowest recorded TC2 oil demand fell and product stocks built, hire rates fell back which saw TCE the real effects of low product demand catching up with the fixture being 37,000 mt at WS 67.5 in November. This provided owners TCE earnings drop to around $5,000/day in Q3 and $12,000/day in Q4. Overall, shipping demand. Traders discharged volumes previously earnings of about $2,000/day. Overall, it has been a year no-one could ever 2020 has been a better year for owners than 2019. Accordingly, earnings have held in floating storage while low refining margins in the have predicted and now with vaccines being rolled out slowly but surely improved, averaging $17,000 to $18,000/day over the year. In comparison, wake of higher crude prices saw refiners cut output as and international travel looking more certain, the outlook for 2021 looks a 2019 averaged $14,000-$15,000/day. much as possible. Another factor hurting the segment was lot more positive! the competition from Suezmax and VLCC newbuilding The current MR orderbook stands at 10% of the existing fleet. deliveries which saw distillate traders storing product at cheaper levels and in larger quantities. A clean trade which was initially intended as a temporary positioning voyage PRODUCT TANKERS – WEST Handies for crude tankers now saw ships staying clean due to better earnings. Indeed, most of these ships stayed clean until A fairly similar story to the MR segment with a natural positive start due the end of the year. Inevitably all these factors contributed It is difficult to describe a year which was so exceptional with market to the ice season in the Baltic (albeit with very little ice). However, as both to earnings for the segment remaining in the $5,000 - players on both sides experiencing extreme situations. That being said, the sectors remained weak for the majority of the year, more often than not we $20,000/day range over the second half of the year. common feeling is that overall, it was more positive than negative but not saw traders prefer to take MRs where and when possible, as it made more for the right reasons and left questions being asked of what is normality Optimism remains low for the prospects of the LR2 segment financial sense to do so. Although TC9 managed to reach as high as WS 435 for and what is the benchmark? in 2021 given that low product demand is anticipated to 30,000 mt in April giving a TCE of about $70,000/day. On the other hand, about the lowest recorded was WS 85 for a 30,000 mt which equated to a TCE of persist over 1H21while there is a chunky Suezmax and LR VLCC orderbook to be delivered. One can only hope that about $2,000/day, a level which has persisted since the summer. the vaccine rolls out will help product demand to recover. Like all markets, last year saw extreme volatility largely as a consequence of The current Handy orderbook stands at less than 1 % of the existing fleet. the Covid pandemic, the impacts of which continue to rewrite virtually every preconceived idea we had of the LR markets. Most significantly, reduced global oil demand drove a surge in short-term storage activity which saw 15-20% of Maybe the East the LR2 fleet taken off the market at any given time and delays at discharge Edible Oils which, at times, saw a similar percentage unavailable to the spot market. Initial Vegoil of Suez market storage for 4-6 months was largely redelivered or extended as the anticipated rebound from the pandemic is yet to be realised. However, vessels’ discharge Soya bean oil exports from Argentina increased again by 6% year-on-year will benefit from orders continued to be uncertain and trade flows were often quite unfamiliar in 2020 to approximately 7.3 million tons. Out of the 196 MR1s or MR2s (storage of jet is new), making market forecasting very difficult. older European that were fixed with vegoils during the year, 132 went to India which was Toward the end of the year, markets seemed to have adapted; a combination of again by far the main importer. Biodiesel exports were lower compared with refineries cutting storage and uncertain itineraries have largely balanced the reduced refining activity. 2019 with about 660,000 mt of Soya Methyl Esther imported by Europe, This is demonstrated by the fact that, on an annual average basis, the LR2 segment employing 22 MR2s. A total of 218 MR1s or MR2s were chartered from runs or closing stubbornly maintained some of the best returns of any tanker sector in 2020. South America with vegoils and/or biodiesel during the year. Freight rates

72 BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021 Picture: TORM ELIZABETH, LR1 tanker, 74,999 dwt, delivered in 2020 by GSI, operated by Torm. Photo: Electrician Hernandez, Ariel Garcia. 73 TANKER FFA MARKET

The year ended with diverging ideas. On one hand, the FFA MARKET uncertainties for 2021 weighted on charterers’ appetite for tonnage, while the progress on the rollout of Covid As with all other markets, 2020 was a year which was dominated by Covid, vaccines contributed to fuel owners’ expectations for a quarantine and lockdowns. However, the Tanker FFA market saw record stronger 2H21. This accordingly boosted owners’ rate levels of activity throughout the first two quarters of the year. Initially ideas for 1 year and longer periods. thoughts were that the pandemic would be controlled and therefore be Next year, TC activity is likely to increase alongside quickly over. With an oil curve in contango and available vessels for storage the vaccination campaign which should help economic at reasonable levels the storage play was on and traders hedged their activity and prevent new lockdowns. Expectations of exposure as this started to drive tanker chartering rates upwards. As the stronger global oil demand (which will lead to higher virus spread and more countries locked down, in April, the WTI May expiry Oil production) should then encourage charterers to contract collapsed to historic lows. With land storage full and WTI being a increase TC coverage. During the first half of the year, physically deliverable contract, people panicked to exit their positions from TC rates could therefore increase more rapidly than spot the landlocked delivery point, driving down global benchmark oil prices. This freight rates. fueled some of the larger trading houses to go longer on storage as oil fell. With the available fleet of VLCC, MRs and LRs now depleted due to storage, owners found themselves in a good position. In Q2, the already high freight rates were further intensified by the toughening of sanctions on Venezuela One Year Time Charter Hire Rates (Eco tankers) which at first looked like it might have a significant impact on numerous 1yr TC ECO rates 1yr TC ECO rates vessels. Traders were going long paper and owners were happy to sell into Million$k per dayof the near historic rises, a situation that seemed at one point to favor all Million of parties. The world’s economies continued to shrink and with it, oil demand. A 90 90 massive reduction in global air travel drove the demand for jet, gasoline and 80 naphtha to ever diminishing levels and shipping rates followed suit. Owners 80 pinned their hopes on an active Q4 as is historically traditional. This wasn’t 70 70 to be the case and we saw tanker rates slump to levels at which traders saw 60 little point in hedging against. 60 50 50 40 40 TIME CHARTER 30 30 rates peaked at WS 170 for a 30,000 mt cargo ex-Black Sea. During this flash 20 Palm Oils 20 in the pan, some of the main Black Sea and Mediterranean Charterers including 2020 started with a focus on the 0.5% Sulphur cap on bunkers and its impact 10 Trafigura and Newton mainly took Handies or MRs on time charter for 3 to Approximately 280 MR1s or MR2s were fixed to carry on bunker costs and oil flows. However, the time charter (TC) premium 10 6 months at rates of between $11,000 and 12,5000/day, although this was 0 palm oil from Indonesia or Malaysia to Europe and the US on scrubber-fitted vessels collapsed in early March 2020 in tandem with Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec nothing compared to the quantity of deals which were done in 4Q19. 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec in 2020, slightly less than the previous year. Out of the 75 narrowing high - low sulphur fuel spreads. The increase in crude oil production Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec MR2 newbuildings that were delivered in 2020, 40 units The Black Sea once again outperformed the Mediterranean, as the largest from OPEC+ against the backdrop of Covid-led oil demand destruction, led VLCCVLCC SuezmaxSuezmax Aframax Aframax LR2 LR2 were fixed with palm oils on their maiden voyage. Daily exporter of 30,000 ton stems. On the other hand, 45,000 mt stems seemed a super contango to form. Accordingly, demand for tankers to be deployed LR1LR1VLCC MR2Suezmax MR1 Aframax LR2 LR1 MR2 MR1 returns peaked at $20-25,000/day in the first semester to be a rare commodity throughout the year. Trafigura and Newton were the for floating storage and hence TC activity surged. Initially this lifted crude tankers which was swiftly followed by clean tankers. for an ecoship but weakened towards the end of the biggest players followed by Coral energy, Tupras, Petraco and Litasco. The N°Monthly of Tanker number TCs inof 2020 reported Time Charter year to reach approximately $15,000/day. We expect Mediterranean continues to have a high percentage of Handies and MRs Almost 50% of last year’s VLCC, Suezmax and Aframax TC fixtures occurred N°fixtures of Tanker in 2020 TCs in 2020 approximately 90 MR2s to be delivered in 2021, providing which are older than 15 years old, despite owners such as Moller managing between March and May. The lion’s share of fixtures were for less than 1 year. 160 again a good source of FOSFA tonnage for palm oil traders. to send most of their older units to the Far East and renew their fleet in Indeed, these accounted for around 70% of the TC fixtures made during this 160 140 the Mediterranean. In general, the variety of players in the region allows period. TC rates rose significantly to hit record levels. Several 6-month TCs on >15-year-old ladies to be still easily tradable. 140 Fuel Oil VLCCs, the most active segment, were fixed at rates of above $100,000/day. 120 Meanwhile, 1-year deals were fixed at between $50,000 to $85,000/day. 120 Contrary to the Mediterranean, the units trading in northern Europe are 100 Overall, 2020 was a negative year for owners, especially mostly below 15 years old, as some large charterers have age restrictions in For clean tankers, the period between March and June was most active, 100 when compared with 2019. The pattern of the market terms of vetting. Total remains the biggest player in the market, with a strong accounting for 49% of TC fixtures on clean tankers last year. MR2s followed 80 trend was also different. Surfing the wave of a good presence not only in terms of cargoes, but also in terms of relets. Litasco by LR2s were the most active segments among clean tankers. Short TCs (less 80 60 4Q19, the market experienced a strong start in January had a busy year especially from the Baltic, together with Trafigura and BP. than 1 year) on clean tankers also accounted for the majority of the reported 60 which persisted until end-February. Thereafter, thanks The UK Continent market overall was played mainly also by Shell, Clearlake, TC deals. Several LR2s were fixed for 6-month periods with rates above 40 to plummeting oil prices which drove a hike in refinery Petroineos and Repsol. $50,000/day, while MR2s saw 6-month TC deals at around $25,000/day. 40 output, plus demand for storage, we saw a spike at end- 20 April which lasted approximately 3 weeks where the If the question moving between 2019 and 2020 was the impact of IMO 2020 Following a quiet summer and a sharp decline in TC rates alongside spot hire 20 0 market reached WS 350 for a 30,000 mt cargo for a Black regulation on the markets, the obvious question between 2020 and 2021 is rates, September and October saw a small rebound in crude and clean tanker 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sea – Mediterranean run. However, from the third decade related to when the world will start to see light at the end of the pandemic TC fixtures. Some charterers, mostly traders, managed to extend their short tunnel. The sentiment moving into early 2021 is not the most positive, but TCs done between March and June 2020 at a lower rate. On the other hand, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec of May onwards, the levels started to drop. Crude Tankers Less than 12 months 12 months and longer there is confidence that the market will be boosted again in the second half of some oil majors have taken 1 to 2 years TC coverage during this period to Crude Tankers Less than 12 months 12 months and longer CrudeProduct Tankers Tankers Less than 12 months 12 months and longer After a very weak Q3, Q4 never really kicked in, with the year, when Europe and other hard-hit regions will hopefully start to see take advantage of lower TC rates ahead of an anticipated recovery in freight Product Tankers Less than 12 months 12 months and longer Product Tankers Less than 12 months 12 months and longer only a mini spike during the first half of December, where the benefits of the vaccine rollout. rates in 2021 and 2022.

74 Picture: HAFNIA NANJING, LR1 product/chemical tanker, 74,999 dwt, built by Guangzhou Shipyard International (GSI) for HAFNIA, delivered on January 2021. BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021 75 TANKER SECOND HAND MARKET

2019. Nevertheless, at the end of 2020 more enquiries were being received by the SECOND HAND MARKET shipyards. Considering our expectations of increased scrapping activity, there is an expectation for newbuild prices to firm in 2021.

‘It is easier to die of one's contradictions than to live them.’ - Albert Camus. New orders 2015 to 2020

N° of Ships 2015 2016 2017 2018 2019 2020

Contradiction is certainly the key word that characterized VLCC 64 15 58 44 39 44 2020. As Albert Camus wrote “it is easier to die of one’s contradictions than to live them”. In 2020, the tanker Suezmax 62 20 28 22 38 39 market presented multiple contradictions to Owners Aframax & LR2 109 19 37 28 56 39 resulting in a variety of different effects. Panamax & LR1 33 3 8 8 1 0 Tanker Owners are known for their capacity to resist and adapt to black swans, but last year was especially challenging due to their proliferation. Despite arriving The evolution of second-hand prices in 2020 can be split into two parts. During en masse, they rapidly flew away leaving the market the first months of the year, the prevailing upward trend continued, propelling to face its contradictions and realign itself to shifting values higher for all the age segments and in particular, older units. underlying factors. Thereafter, prices gradually registered a steady downturn that accelerated towards year-end. For example, VLCCs lost over 16% in value, Suezmaxes almost In 2020, unexpected events propelled the tanker market to 18%, Aframaxes and LR2s about 16% and and LR1s about 8,5%. A new heights. Whilst not all these individual events would floor in prices for the oldest vessels was created in effect by strong demolition have a positive effect on the market, the combination of prices that prevented vintage tonnage prices from tumbling further. Covid, the reduction in global oil demand, and the eruption of an oil price war triggered a temporary massive increase in floating storage requirements. Accordingly, chartering Vessel value changes from January 2020 to December 2020 rates and in turn asset values received a large boost over For the fourth year in a row the number of transactions for further trading VLCC the first part of the year. However, the positive impact of Re-sale 5 years 10 years 15 years increased by more than 20% with about 69 more transactions reported than the aforementioned factors eventually waned and by late VLCC -16.04% -15.46% -14.85% -19.18% in 2019. With a boiling charter market, many transactions took place during There was a VLCC bonanza in 2020 in terms of units summer, rates and values had moved significantly lower. the first 4 months of the year, driving prices up and motivating more owners sold with 77% more transactions than 2019 which led Suezmax -15.94% -16.98% -17.81% -20.83% to consider selling their vessels. During this initial period, and compared with to a record 105 VLCCs changing hands. These sales were Nevertheless, employment options remained strong for all 2019 when older units were sold for slightly above their scrap value, Sellers fragmented among different age segments with some Aframax & LR2 -8.04% -15.06% -14.67% -27.27% the different age categories and consequently scrapping achieved a substantial premium to demolition when selling for further trading. vintage vessels attracting more interest than others. activity remained at very weak levels across the year. Panamax & LR1 -10.11% -12.50% -7.89% -4.17% In the last six months of 2020, activity started to weaken in tandem with a Transaction volumes for ships younger than 5 years softening charter market and falling asset values. The softening in prices at increased significantly to a total of 22 reported sales Units sold for scrap per year first brought a reduction in the number of transactions. However, eventually against the 7 transactions registered in 2019. Most of these Tanker second-hand prices Buyers and Sellers price ideas moved closer and the second half of the year took place in the first part of the year. To illustrate the N° of Ships 2015 2016 2017 2018 2019 2020 Tanker second hand prices registered even more activity than the first. above, one can recall that in January 2020 the M/T Lady $m and M/T Kiwi (DAEWOO 2020-built) sold for $105/106 VLCC 1 2 16 32 11 2 $m 100 S&P activity (vessels for further trading) million each. For vessels aged between 9 and 12 years old Suezmax 1 1 14 23 8 5 there were 17 transactions. The most active vintage was 90 for ships of 15 to 20 years where we noticed no fewer Aframax N° of Ships 2015 2016 2017 2018 2019 2020 3 9 31 45 5 11 & LR2 80 than 61 transactions. At the beginning of the year, 44 VLCC 55 28 48 48 59 105 Panamax VLCCs were expected to hit the water, but in the end only 8 3 8 10 6 3 70 & LR1 37 units were delivered. According to the orderbook at Suezmax 38 19 29 28 41 44 60 end-December which stood at 86 units, 40 ships should Aframax & LR2 52 39 42 66 76 95 theoretically hit the water in 2021. Meanwhile, one unit Shipbreaking activity was affected by travel restrictions 50 was scrapped last year. and difficulties in effecting crew changes. Meanwhile, there Panamax & LR1 18 8 12 20 33 24 40 remained plenty of decent employment prospects for older tankers during the year, therefore very few units reached 30 scrap yards. While there were almost no sales for demolition 20 between March and June, scrap prices for tankers fluctuated between $310 to $420/ldt during the year. 10 New orders slipped by about 9% last year as only 122 units 0 There was a VLCC bonanza in 2020 in terms of units sold 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 were contracted compared with 134 in 2019. However, 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 orders were quite stable for larger tonnage. Both VLCCs VLCC 5 years old Aframax 5 years old with 77% more transactions reported than 2019, leading to (44 versus 39 ordered in 2019) and Suezmaxes (39 against VLCC 5 years old Suezmax 5 years old Panamax 5 years old Suezmax 5 years old 38 in 2019) posted year-on-year increases. Meanwhile, Aframax 5 years old Panamax 5 years old a record 105 VLCCs changing hands orders for Aframaxes and LR2s dropped to 39 from 56 in

76 BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021 Picture: ENERGY APOLLO, 49,812 dwt, delivered in 2020 by STX O&SB Jinhae (Republic of Korea) to Golden Energy. 77 TANKER TANKER SECOND HAND MARKET SECOND HAND MARKET

Suezmax As much as we see a ray of The Suezmax market registered a slight increase but this Panamax tanker sales fell to 24 transactions in 2020. If it wasn’t for the sale was not to the same magnitude as for the VLCCs. A total of the UACC fleet to Georgiopoulos which included four New Times 73,000 dwt light, the question remains: of 44 Suezmaxes were sold for further trading. The age units built in 2009 and 2008, the vessels sold would have been of only 14 years segmentation reflected the same dynamics as for the VLCCs or older. On the older side, Eletson Corp. was an active Seller, disposing of 4 of with 7 transactions for units younger than 5 years old. their units at the beginning of the year, of which, 2 went to Union Maritime. An en-bloc deal involving Nord Group saw four units built by Hyundai in 2004 ‘is the storm really over’? Most of these transactions were sale and leasebacks, such being sold to Middle Eastern buyers for $10.25 million each. as the Zeynep and Ayse C (both 158,000 dwt, 2020-built by Hyundai Heavy) which were sold in August for $63.5 million In the Panamax (including LR1s) fleet, we saw 8 vessels delivered across 2020 each with 10 years bareboat back. Only 3 vessels were sold against an anticipated number of 11 units as of 31 December 2020. The total which were between 5 and 15 years of age. orderbook at end-2020 stood at 6 units, of which 5 are due in 2021.

Buyers’ attention was focused on vessels between 15 and 20 years old. Accordingly, a total of 27 transactions MR1 and MR2 were executed. Given this high demand, several major shipowners took the opportunity to offload some of their MR2s faced the same trend as the crude tanker market last year. Prices increased older tonnage, such as Avin International which sold 3 of over the first four months of the year before cooling down to lose more than 13% its 2000-built Suezmaxes, and Sovcomflot who offloaded year on year as per the BSPA index, moving from $29.62 million to $25.71 million. 2 of their early 2000-built vessels. The total number of transactions for further trading dropped from a strong 197 in S&P outlook for 2021 Surprisingly, 7 vessels built in the 90s were also sold for 2019 to a meagre 116 in 2020. Only 13 units below 5 years old switched hands. In further trading, reflecting last year’s unusual dynamics. the 5-10 years old segment, there was a healthy total of 30 transactions reported 2020 was a storm combining different factors, with favorable and contrary with a significant number of these consisting of en-bloc operations. In the 10-15 winds. We have navigated through this unpredictable year and now the The Suezmax fleet saw 30 units delivered in 2020 (versus years old segment there were 26 sales, in line with the previous year. Finally, the question is what is awaiting us after the storm? an end-2019 forecast for 34 vessels) while only 5 units lion's share of deals involved older vessels, with 48 transactions reported. were scrapped. By end-2020, the total Suezmax orderbook 2021 will be a different year. There are expectations for it to bring some stood at 81 units, with 35 of these expected to hit the No less than 15% of MR2 secondhand sales were accounted for by the en-bloc tranquility and stability with the hope of solving the global Covid-19 pandemic. water in 2021. deal of UACC selling to clients of Georgiopoulos. Several transactions for modern tonnage were linked to refinancing operations. Older vessels were mainly sold The solution is not going to be a magic spell that will return things to their by Western Owners to Owners in the Middle East and Far East with the tonnage previous state. Already it is possible to see that the logistical operation of Aframax/LR2 and Panamax/LR1 subsequently deployed for local trades. manufacturing and distributing vaccines is taking time and for as long as this situation persists, the demand for clean products and crude oil will be affected. Mirroring the bigger sizes, in 2020, activity for Aframax In the newbuilding market, 69 MR2s were ordered during 2020, and 72 units were and LR2s increased significantly with 95 transactions delivered against the initial expectation of 75. The total orderbook remains high President Biden’s inauguration and the transition to a new US administration reported versus 76 in 2019. Activity was concentrated on with 152 units, of which 106 are expected to be delivered In 2021. Only 11 units might help to stabilize some aspects of international tanker trades, but older tonnage (10 years+) with few instances of modern were reported sold for demolition last year. overall post-Covid adjustments will likely only accelerate from mid-2021 onwards. Therefore, Owners will need to be patient and wait for global oil units changing hands. Indeed, only 5 transactions involved S&P activity in the MR1 segment has again been limited. We registered 51 demand to fully recover. a vessel younger than 5 years old. These included one transactions during the year and only five of them involved modern tonnage. More transaction for sale and leaseback with International than half of the sales were in the 10 to 15 years old segment. To complete the With the combination of higher recycling prices from shipbreakers Andromeda selling their 2020 Daehan-built unit to clients picture, 19 units older than 15 years old were sold, mainly to Chinese Buyers. (standing well above 400 $/ldt in early-2021) and persistently low spot of ICBC Financial Leasing. and time charter rates mainly affecting the oldest units, there is a strong Similar to 2019, last year saw no MR1s ordered. This leaves the orderbook with expectation that a big chunk of the older fleet will have to exit the market. No less than 23 vessels aged between 8 and 12 years old only two units to be delivered in 2021. Meanwhile, 10 MR1s were reported sold Therefore, as soon as vintage vessels are due for a special survey or dry were sold. Among those included several units linked to the for demolition. Xihe Holdings and Rizzo Bottiglieri de Carlini Bankruptcies. docking, Owners will have a tough call to make. The former were purchased by various buyers while the However, some hope of rebalancing and equilibrium is indicated by the latter were taken by KKR/Pillarstone and in fine Premuda. OBO increasing prices of new ships. By early 2021, steel prices had increased The majority of sales (54 units) in the segment involved almost 17% year-on-year. Extra yard costs combined with a weaker US There was basically no S&P activity for the OBO fleet. New additions were vessels of 15 years and older. Major tanker Owners Dollar will lead to an increase in newbuilding prices. Owners will also need limited to the delivery of two 54,000 Dwt Cleanbu vessels from Yangzijiang decided to take advantage of a favorable market to offload to face unanswered questions when deciding on their main engines. The Shipbuilding to Klaveness. Otherwise, the 126,958 dwt, 1983 US-built Apollo their older units amid much interest from Buyers the far fear to contract a “maybe soon to be obsolete” vessel in terms of propulsion Spirit was sold for recycling to Turkish Buyers. As of December 2020, the east, including Indonesia and Vietnam. will be a common theme over the months to come. orderbook remains very limited with 3 vessels on order, all expected to be Out of the 27 Aframaxes (including LR2s) that we were delivered in 2021. Therefore, as much as we see a ray of light, the question remains, ‘is the expected to be delivered during 2020, only 21 hit the storm really over’? water. In 2021, we should see another 69 vessels delivered while the total orderbook stood at 116 units as of late December 2020.

78 BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021 Picture: MONJASA SERVER, 9,165 dwt, delivered in 2009 by Zhejiang Dongfang (China), operated by Monjasa. 79