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The new sulfur emission norms for marine fuels have pushed up t prices of secondhand tankers, particularly the Long Range II, which is in strong demand according to shipping industry executives.

Prices of five-year-old LR2s have risen by at least 28% in the last six months alone, they said.

According to International Maritime Organization, it will be mandatory globally to cut sulfur emissions from marine fuels to 0.5% from next year compared to the current 3.5%. This will push up the demand for marine gasoil, or MGO, which is moved in clean tankers and their freight rates are also expected to get a boost, making them attractive for investors.

Shipowners are finding it lucrative to buy clean tankers such as LR2s, which is a preferred mode of transportation for MGO, sources said.

“There is an asset play going on with more LR2s being grabbed by owners or S&P, market,” a source involved in such deals said on the sidelines of the MARE Shipping Forum in Singapore earlier this week. Around 10-15 LR2s have exchanged hands in the last six months, he said.

This is pushing up the prices of the LR2s, which are significantly higher compared to last year.

A five-year-old LR2 now goes $31 in and $32 million in the S&P market up 24%-28% from $25 million in August, according to brokers.

“The IMO 2020 regulations are already being factor into the value of ships,” said an S&P broker who does not wish to be identified.

Considering the bullish clean tanker not many five year olds are now being offered in the market. Owners prefer to keep these ships in anticipation of further value enhancement and also to recover the cost of investment made earlier.

Most sales and purchases are taking place in the 10-year- and 15-year-old segment, the S&P broker said.

Even for the 10-year-old LR2s, brokers estimate that the going rate is now $22-$23 million. These ships were worth around $19.5-$20 million in August last year, they said. A 10-year-old ship is now priced close to the value of a five-year-old six months ago, they added.

Most big oil trading and refining companies are looking to have LR2s but existing owners will not easily part with the younger ships, said a ship finance executive who is channeling investment into such deals.

“It is not easy to get a young LR2 ship for purchase,” he said.

Despite newbuilds entering the global fleet as well, it is the positive freight outlook for these tankers, which is prompting owners “to sit up and take action,” he said. Furthermore, newbuilds have to be ordered a few years in advance while the secondhand ships can exchange hands at short notice and are also relatively cheaper.

Large iventory of MGO are expected to move from North Asia, India and the Middle East to Europe to satiate the burgeoning demand in anticipation of marine fuel emission norms.

Demand for MGO can at least double next year, said Ralph Leszczynski, Singapore-based Director of research for Banchero Costa, a global shipping brokerage and consultancy. Asia is now heavily surplus in gasoil and most of these volumes will move to Europe, he said.

Economy of scale warrants that larger fleets are moved in single voyages and it is here that LR2s have an edge over the LR1s and MRs.

Such is the interest in LR2s that last month even a 14-year-old fetched around $13.5-$14 million for the seller, sources said.

Though LR2s have eaten into the demand for MRs in moving cargoes from North Asia but as a spillover impact prices of smaller ships have also appreciated.

The 2009-built Japanese MRs can now fetch around $16.2-$16.3 million, up from $15 million-$15.5 million, three months ago, according to brokers.

Even the Aframaxes, which are used to move fuel oil, are in strong demand as an asset worth investing in, sources said. This is because part of the demand for bunkers under the IMO 2020 regime will be met from high and low sulfur fuel oil.

Brokers estimate that close to 40 Aframaxes and LR2s combined have exchanged hands in the last six months. Earlier this month, Viking sold three 2005-2006 built Aframaxes en bloc to buyers in the Middle East, and market participants said the total deal was close to $48.5 million. Viking executives could not be immediately reached for comments.

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