Tanker report Aug 25By james tweed • Aug 25th, 2011 • Category: Tankers
* DUE TO HOLIDAYS, AUDIO WILL RETURN ON SEPT 1 *
Thank you for downloading the tanker market report from Coracle Online and Braemar Seascope for August 25th 2011. This report will look at the VLCC, Suezmax, Aframax and CPP sectors.
Starting with the VL’s and for many weeks now we have discussed how it is possible that this market perpetuates; how and why owners accept
freights which do not cover their running costs. Perhaps their answer is that at least they contribute towards the running costs, although one or two recent deals reported mean some owners are also happy to contribute towards the costs of a voyage in order to perform it. As we have already said, this situation is not sustainable and will lead to failures. The fundamental problem for market rates is that for the first time in a long time the world tanker fleet is massively oversupplied with high quality tonnage. 67% of the crude tanker fleet is 10 years old or less. As a shipowner, when you are already subsidising crewing costs, are you also happy to subsidise maintenance costs? Something has to give in this situation and we have already had feedback from some major oil companies that they have concerns that some owners will look to save money in this area. In the short term this need not be a concern because many vessels are new and presumably in good shape, but the longer this situation continues the more inevitably we shall face an incident resulting from poor investment in crewing, maintenance or operation. Naturally the oil company vetting systems can pick up most warning signs, but if we are looking at two or three years of the current levels concerns
will mount that something could get missed.
Rates for AG/East are about 265 x 47, which has meant they have lifted off the rock bottom levels of returns in the hundreds of dollars rather than thousands, but this does not return a vessel to profitability. The heavily contested AG/West market has perhaps recovered from the incredibly low 280 x 34 we saw fixed a couple of times – but then again perhaps not, such is the desire to try and make reasonable earnings by triangulation.
It has been another quiet week for VLCCs in the Atlantic. Reports are that 260 x 47 was fixed W Africa/US Gulf, since when owners have been offering to do better for earlier dates, highlighting the rarity of trans-Atlantic cargoes at a time when the Suezmax market is so weak. There have been signs of life on fuel arbitrage movements from continental Europe. Koch fully fixed an OTC relet at around $3m with port costs for the charterer’s account.
The 30 day availability index shows 73 double hulls and two single hull VLCCs arriving at Fujairah, compared with 64 double hulls and two single hulls last week. The main reason for this 9 ship jump in availability is the slightly generous Chinese tonnage list due to fewer contract cargoes fixed so far for September. The first decade cargoes are already almost out of the way without leaving an impact on the market situation, demonstrating that the charterers’ drip feeding strategy is working really well for them.
The freight rate for 280,000mt AG/US Gulf is still ws34.0, the same as last week, so, with bunkers at US$666tonne, down US$5.50/tonne on last week, owners’ theoretical earnings are:
Double Hull TCE: US$ -8,500/day (US$ -9,000/day last week)
The freight rate for 270,000mt AG/S.Korea is ws47.0, also the same as last week, making owners’ earnings:
Double Hull TCE: US$ 3,900/day (US$ 3,400/day last week)
Now we look at the Suezmaxes and steady fixing in West Africa has enabled owners to at least maintain similar levels to those seen last week, despite the lack of VLCC business. Lengthy tonnage lists caused rates to dip slightly for shorter voyages, but recover as the week progressed. If enquiry continues at current numbers it will be difficult to see how rates can be maintained at last done. Hurricane Irene has done little to disrupt vessels positions and has had little influence on the current market. Next week should see more of the same in terms of the amount of cargoes but it is yet to be seen if freight levels can be maintained.
In the Med and Black Sea the week started on a quieter note than last. Although there was still a fair amount of fixing from Ceyhan and Arzew, this failed to influence rates to any direction. With the amount of available vessels still leaning in the charterers’ favour, there are some who predict further reductions for all routes. The reduction and subsequent levelling in the aframax market has not helped the situation with charterers not needing to look at the larger sizes for cross-Med voyages.
The increase in interest for voyages to the West saw owners looking to ballast tonnage as the list began to build up in the Med. With the majority of Eastern enquiry still focused around the Indian charterers, rates did not move for standard runs to the East. The weak VLCC market provided charterers with ample opportunities for competitive freight for more or less any direction although for modern approved vessels there appears to be a gap in availability.
Now we turn to the Aframaxes and the North Sea market has been fairly uneventful this week. There has been very little enquiry, which, in addition to the growing number of prompt tonnage available, forced rates to soften to 80 x 95 at one point during. In the Baltic, Primorsk stems have been covered as usual with rates continuing to move sideways, remaining at 100 x 75. As was the case last week, there has been a stronger presence of fuel oil activity over crude this week which has kept the market moving slowly. Looking into next week, it’s hard to see what can change the market and rates, therefore we don’t expect any change in numbers.
This week in the Mediterranean and Black Sea, owners saw enquiry drop off as charterers cooled off having fixed their end-month stems. As a result, fixing levels have come off and again settled on the low levels we have grown accustomed to. Black Sea and Ceyhan loaded cargoes are being fixed at 80 x 90, and for an average cross Mediterranean run, the rate is 80 x 85. After two weeks of firmer rates, these quickly fell back to levels of minimal returns due to the pressures of an over tonnaged market. For the coming seven days we expect circumstances to
remain the same. The only point of volatility is Syria, which is paying premiums currently due to the added war risk and the uncertainty of the situation. This is now a market within itself and its developments are independent to the rest of the Mediterranean and the Black Sea.
We now move to the Clean markets in a week in which there has been little in the way of LR2 AG/East movement and as such rates have remained at 125. In contrast, LR1 activity has significantly increased for movements AG/East. This started with a replacement ship being put on subs at 165, shortly followed by 157.5 being put on subs for an Iran load. At the same time, LR1s have been taken out of the market for movements west with WC India/USAC reported on subs at $2.50m and thus it appears sentiment is towards a firming TC5 market.
The MR market for WC India/JPN has been slow this week with rates dropping to ws162.5 levels compared with previous weeks ws175.0. But tonnage in the AG continues to command relatively strong rates for cross-AG movements at around the US$275,000 level with usual premiums being paid for Iraq discharge. Rates to East and South Africa continue to command their risk premium with South Africa this week being fixed at ws260.0.
In the West and this week TC2 has continued the slide which started to become evident at the back end of last week. There’s not a particular single fixture to point to as precedent setting, but rather a continual drip of tonnage becoming available. This served to undermine rates with only interest in West Africa preventing levels from sliding further, faster. TC2 has been concluded at the equivalent of 37 x 142.5, and there are other owners out there today willing to repeat these levels for early September dates. BITR has come in below 145 today (Thursday), and with tonnage continuing to build and a long weekend coming up in London, there doesn’t seem to be anything around to stop the rot from creeping further. The stockpile stats released stateside yesterday provided no comfort either, showing a 1.40m bbl build, rather than the anticipated 1.40m bbl draw. Although there is talk of the trans-Atlantic arbitrage opening on the back of the Libya situation, so far it has been impossible to find anyone to substantively back this position. Looking forward to next week, rather pessimistically there seems to be little ground for belief that rates won’t dip lower. Whether they will break ws140.0 for a regular TC2 voyage at this stage clearly is an unknown. Looking at it from a pure supply/demand perspective the indicators are that it will require some complicity from charterers not to force rates lower as much as collective effort of will from owners to keep them where they are currently.
In the Med there was a brief fillip of excitement on Wednesday when Sacor got caught on a relative prompt naphtha stem to Brazil and put a vessel on subs at 35 x 180. The status quo was swiftly restored however when that ship failed and they re-fixed at 155. Elsewhere in the short haul market, rates continue to be resolutely stuck to the 30 kt x ws137.5 levels we have seen without variation for the last three weeks. PMI, despite a more stringent vetting system, found two owners willing to fix Sines/EC Mexico at 37 x 130 and failed both of them. Then they refixed at ws127.5 on a vessel with palm oil as last cargo ballasting down from the Continent. Which, given a healthy backhaul market, currently is better than fixing 37kt x ws145.0 on a TC2 round at the moment. It is indicative of how badly vessels with last cargo palm suffer given the glut of fully clean vessels around currently.
Thanks for listening