Tanker market update for week to August 12thBy james tweed • Aug 12th, 2010 • Category: Tankers
To learn more about the tanker markets, why not take Coracle’s Tanker Chartering course?
TRIAL – we are publishing the transcript of podcasts as a trial here on ShippingPodcasts.com and we would love your feedback on this please!
Thank you for downloading this tanker market report podcast from CoracleOnline.com, professional development specialists, in association with Braemar Seascope for August 12th 2010. This podcast is sponsored by ShipServ, the world’s leading e-marketplace for the buying & selling ship supplies. Find out more at ShipServ.com.
We seem to be reading plenty of contradictory headlines this week which is a symptom of the state of the market. Last week a headline read: “Record number of VLCC’s arriving in Arabian Gulf over next 30 days”, this week we read: “Middle East Tanker Rents Jump Most in 10 Months as Demand Gains”…. As Elvis Costello said, “Yesterdays news is today’s fish n’ chip paper” and rightly so. The reason for these conflicting headlines is that the VLCC market became so depressed Owners were willing to fix below operating costs to secure employment. Obviously, this can only happen for a short period and is totally unsustainable, hence rates have recovered to the minimum acceptable levels. Another headline read, “Returns from very large crude carriers, or VLCCs, on the Saudi Arabia-to-Japan route climbed 114 percent”, again this statement is true, but put into context that operating costs for a new VLCC are about $10,000 a day, these levels provide minimal return on the $100 million investment in the vessel. It is purely Owners refusal to continue to fix below 265 at 52.5 for the East and 280 at 40 to the West which has moved the market up above these levels to 55 East and remaining at 40 West. However, looming ominously for Owners is the prospect of more VLCCs completing storage duties and a VL order book to frighten even the most bullish. We fear that freight will remain at these earning levels for some time.
The West Africa market started the week with a fixture being reported 260 at 55 for West Africa US Gulf and since then we have seen 5 or 6 VLCC’s fixed by India-based Charterers and a couple to the East, which has thinned the tonnage list. A VLCC cargo for West Africa to Kochin is expected to be covered at $3 million for West coast India, meaning that East coast India should be worth in the region of $3.3 million. The arbitrage fuel oil movements from the European Continent to Singapore are being rated by most traders below 2.5 million, which Owners cannot justify at the moment.
The 30-day availability index shows a total of 65 VLCC’s arriving at Fujairah, which breaks down to 50 double hulls and 15 single hulls, compared to last weeks year high of 83, 70 doubles and 13 singles.
As you can see from the figures the tonnage outlook improved from last week, though 94 cargoes have been covered for August leaving only approximately 15 to be fixed, hence Charterers can still afford to be relaxed and keep rates low.
As mentioned, the freight rate for AG to Rotterdam is 280 at 40, up a point from last week and with bunkers at $468 a tonne (down a dollar from last week) owners earnings are up to $8,000 per day… This compares with AG to South Korea, 270 at 55 returning owners earnings $16,750 a day, up from $7,900 last week.
Looking at the Suezmaxes and there was a pleasingly strong end to the week last week for the West African market as 7 cargoes were quoted very close together and all for the last decade of August. The increase in activity led to a substantial increase in rates which carried over into the early part of this week. The first batch of the cargoes fixed in the high 80’s which was approximately a 10 point jump and the remaining cargoes ending up fixing in the 90-95 range. With the market showing relative volatility, Charterers unsurprisingly stopped bringing new cargoes into the market and the strength seemed to drift away as this week progressed.
There wasn’t a huge amount of action in the Black Sea for the Suezmaxes this week: we saw the completion of the August Novo program and possibly the CPC one as well. Owners finally made the tightening list work in their favour and fixed at 95 for a UK Cont Med run, but as the week stayed quiet, rates declined to 90.
For the Aframaxes the week got off to a slow start in the North Sea and Baltic with little demand and plenty of tonnage however by midweek it was all change and a number of ships began to get picked off leaving the list tight for date sensitive cargoes and this resulted in Charterers panicking and we began to see Charterers rush in to at the same time to cover their cargoes for the third decade in August. Unfortunately for owners this activity didn’t lead to rates firm significantly and this may be due to the fact Charterers may decide to declare second voyages on current fixtures in order to avoid going in to the market for ships. Rates stand at around 80 at 90 and 100 at 85 from the Baltic.
Moving on to the Eastern clean markets and despite some initially bearish sentiment at the start of this week, there’s been plenty of activity and rates have continued to rise on both the LR1s and LR2s. The LR2 list is now looking very tight with no vessels left in the AG for August and several ships have been picked off the already thin looking September tonnage list. On the AG/Japan route rates have been done at worldscale 140 and 145 is on subs, paying owners a TCE of around $20-21,000 per day
With a surplus of jet fuel in the A.R.A. region, several LR2s have been fixed for storage at levels reported close to $20,000 a day which is helping to tighten the tonnage list further.
It was a busy week for the LR1s with AG to Japan being done as high as 165, which is the highest level we’ve seen so far this year and returns owners around $16,000 a day. Tonnage is now looking tight for the rest of August and for Eastern positions going into September. However, with a weak Western market and only a few enquiries for Western cargoes, the worry is that the oversupplied Western tonnage will start to ballast through to the East to take advantage of the ever increasing rates being obtained out of the AG.
In the West and there is an over supply of jet in Europe and the AG/West arb is tightly shut at the rates Owners are currently asking. There have been a couple of fixtures this week coming close to the $2 million mark on the LR1s but most of these movements are contract barrels or smaller stems being combined.
The Med/Japan naphtha arb opened this week and we’ve seen a couple of fixtures at around the $1.7 million level. With demand looking weaker for naphtha in the Far East however, we expect to see less activity next week and the potential is there for rates to soften.
MR activity has been fairly quiet this week out of the AG with rates relatively flat at between 165 and and 175 for AG to Japan. AG East Africa firmed slightly with wordscale 300 being done and there have been a couple of AG UK Cont fixtures at just over $1.5 million.
The Cont TA TC2 route was given a beating this week, as expected… Statoil picked their moment and although their 18/20 stem was leaked to the market last Friday, they held off working it until Tuesday when they collected some 10 offers, gave one Owner a counter at 150, which was snapped up straight away and so 20 points was knocked off last done. That was the cue for other Charterers who had been holding back to enter the market and start picking off Owners and rates have been chased downwards to where they currently sit at 145. The only good news for Owners is that all ships going on subs seem to be getting confirmed which should stop rates going any lower this week as the prompt tonnage has been cleaned out. The tonnage situation for the last decade August is plentiful so it seems unlikely that TC2 will have bottomed out at 145, the historic low so far this year is 122.5 so there may be some way to go yet.
The recent good run for Owners in the short-haul Med market is now well and truly over with rates now down to 30 at 150. Transatlantic activity once again has been muted but nominally is probably less than TC2 for the larger MRs coming open in the Med, where realistically 37 at 140 should be achievable.
Thanks for listening