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What impact does the horrendous tanker market have on the banks? Aug 11 report

By • Aug 12th, 2011 • Category: Tankers

The Coracle tanker market podcast for Aug 11th, 2011 in association with Braemar-Seascope

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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for August 11th. This report will look at the VLCC, Suezmax, Aframax and clean products markets.

We start with the VL’s and it has been a very difficult week. We have had major social disturbances in London, huge financial upheaval globally and another week of persistently poor VLCC Worldscale rates. It’s difficult to see when VLCCs will once again be profitable. Hence, shipping shares have also been badly affected by the lack of confidence. The old adage rings true – if you owe the bank $10,000 it’s your problem, however if you owe the bank 100 million on something which costs 8 to $10,000 a day to run, and returns no money, it’s their problem. It’s fair to say that most banks that have financed VLCC purchases have a few such “problems” on their books. VLCCs make investments in the stock market seem positively fruitful. Perhaps it is they who advise owners to keep trading at TCE’s of $1,500/day, ignoring the costs of crewing such vessels. Soon owners and banks will need to offload these vessels to cut their losses, and then we could be in even more serious trouble. Anyway there’s no more market round-up other than to say it’s the same as last week: very poor, too many ships, not enough cargoes and a pretty grim outlook, with owners accepting last done rates.

West Africa has again been quiet, the suezmax market once again being weak with charterers spoilt for choice when it comes to fixing vessels. Very few deals have been concluded to the West. W Africa to the East has been steady, but by no means busy. The long haul is now paying 260 at 43.75, while W Africa/US Gulf can command 260 at 47.5. It’s been a quiet week from the Indian charterers from W Africa, with no cargoes fixed by them.

The 30 day availability index shows 62 double hulls and 2 single hull VLCCs arriving at Fujairah, compared with 66 doubles and 2 singles last week. So far, August has produced 100 spot fixtures, of which 35 have been fixed for the last decade, hinting that there are not many left to come. There are 33 vessels which could cover end month cargoes.

The freight rate for 280 AG/US Gulf is 35, down 2.5 points from last week. Bunkers are down $23 a tonne to $660 which gives owners theoretical earnings of minus $6,500 a day, down from minus $1,000 a day last week. This compares with 270 AG/S.Korea at 45, down 1 and returning owners $1,650 a day, up from $1,000 a day last week.

Although not an age old problem, the suezmax market has recently been doing a lot of fixtures off the market. It is the nature of a market such as this, although it is difficult for owners to establish exactly where the market will fall. As with last week, we have seen a decent level of fixing from W Africa as charterers looked to finish off their August dates. Initially this week, there was some resistance amongst owners and the rates stayed fairly static at 67.5 for the US Gulf, with the standard 2.5 point increase for UK Cont-Med. As the week moved forward there were ships disappearing, but every cargo seemed to attract up to six offers. With such an over-population of tonnage, it looked difficult for owners to maintain current levels. This, combined with the bunker price – which has come off considerably – meant that by the end of the week, rates started moving south. While an Exxon cargo fixed at 67.5, a similar dated UK Cont-Med voyage fixed at 66.25. This was perhaps a slightly lower rate than the list justified, but it seemed the US Gulf rate would settle at around 65. Moving into next week, we will certainly start to see September dates and it can be assumed that the large majority of August dates are covered by now. Unless we see a substantial increase in activity it looks as though the market will continue on the same path.

Enquiry for North Sea Aframaxes had slightly increased compared to recent weeks. Unfortunately it was still not enough as a number of ships have remained prompt in the Continent. The majority of fixtures this week were fixed at worldscale 100. In the Baltic we expected it to be quieter, especially for crude activity, due to the upcoming maintenance work in Primorsk. This is exactly what we have seen, with only a handful of Primorsk stems being worked or covered. The Baltic market has mainly been driven by fuel activity, which in some cases has seen fuel pay the same level as crude. Owners would generally claim a five point “premium” for fuel cargoes. Looking into next week, we anticipate cross-North Sea rates to vary between 97.5 and 100. With more tonnage coming into play for natural fixing dates in Primorsk, we expect charterers start to cover end decade stems, most likely at around 77.5.

In the Mediterranean and Black Sea, activity has picked up and remained constant throughout this week. There has been a sufficient level of enquiry this month, with charterers looking for tonnage off similar dates and load ports. As a result, owners have succeeded in pushing rates up slightly, but due to the sheer number of ships available, charterers have managed to limit this to a mere 2.5 point rise in rates compared to last week. Although this isn’t amazing, at least it’s something… Despite seeing an upward movement in rates over the last 7 days, the market outlook is flat to ‘coming off’, as supply of tonnage is still so strong.

Now we look at the clean markets and East of Suez, prompt LR2 tonnage was very short at the beginning of the week in the AG. However, there was little in the way of enquiry and combined with a shut arbitrage for the back haul market, this has made for a very quiet week for these vessels. Conversely, LR1s have firmed over the course of the week as spot tonnage has been swallowed up with cross-AG activity, enabling them to be open for the first decade of September. Piracy continues to remain an issue for voyages to E Africa and this is reflected in West Coast India to South Africa business being fixed at over world scale 255.

In the West and this week has been flat and directionless. Monday started with TC2 having been nudged down to 142.5, but as the vessel concerned had a SIRE report of some ten months old, the market took little notice of this as a representative fixture and the bulk of charterers carried on fixing at 145 levels. This was despite bunkers dropping in price by some 11% from the previous week. Stock figures released mid week offered some positive news for owners as a substantial and greater than anticipated build of 1.6 million barrels was reported. We could detail the marginal swings in this market to highlight the incredibly moribund situation we find ourselves in, but we’ll resist, save to say that once again we see a week in which the market continues to bounce along the bottom with little to nothing on the physical side to indicate that this state of affairs is likely to change any time soon. Paper, however, has traded up, with 37 at 161 trading for September and this can be attributed to speculation about the hurricane season, since there is nothing on the physical side to justify these levels at the moment.

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