Unsustainable earning levels for VL’s and CPP (TC2) alike make for tough times for tanker owners.By james tweed • Sep 10th, 2011 • Category: Tankers
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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for September 8th. This report will look at the VLCC, Suezmax, Aframax and clean products markets.
Anyone in the world of VLCCs who has failed to notice reports of Chinese government plans to order 80 new buildings for delivery in the next 5 years must have been on a well-deserved vacation. The idea is that Chinese yards shall be kept in business by constructing this huge fleet, which in turn shall be able to cover an increasing amount of China’s chartering needs in the future. There are varying views as to whether these Chinese whispers are true or not, but the old saying “no smoke without fire” springs to mind. But even before such a huge Chinese fleet becomes a reality – if it does – we need to worry about the current market situation, and for VLCCs it has been another tough week with rate levels still treading along the bottom. The volumes are still healthy with an outlook of 115-120 cargoes from the Arabian Gulf this month, but the position lists are ever growing with no sign of slowing down. Owners’ different strategies to try and keep their noses above the waterline by slow steaming, hiding vessels and not offering are unsuccessful as long as there is always a cheaper boat around the corner. However the battle is not lost yet as we are approaching the winter months when weather and higher demand might slowly steer the market more in the owners’ favour – if the charterers allow it…
West Africa is, just as it was last week, amazingly quiet for the VLCCs, as Suezmaxes monopolise almost all of the cargoes at the moment. Only on the few eastbound voyages are the bigger ships preferred. There was only one cargo fixed by the Indians from West Africa this week, at $2.7m for E.C.India discharge. Since the cargo was loading only in Angola, owners didn’t have to factor in the NMA dues involved in Nigerian cargoes – hence our assessment for West Africa to West Coast India is $2.75m and 2.9 for the East Coast basis the more usual Nigeria loading.
In other areas of the Atlantic there has been a decent amount of activity, mainly on the big arb trades like Cont, Caribs and Med going East, with both crude and fuel oil cargoes. However, the dollar per day rate that charterers have in mind in order to move these cargoes is very low and there are few owners interested in the call.
The 30 day availability of VLCCs in the AG is exactly the same as in the last two weeks, with 73 double hulls and 2 single hulls. For the month of September we have seen 102 spot cargoes fixed, and expect that there are about 15-20 cargoes still to be covered. The number of double hulls in Fujairah now and yet to arrive within September suggest an overhang into October of about 25 ships, which might not be the biggest we’ve seen this year but is still enough to maintain current market levels into next month.
The freight rate for 280 AG/US Gulf is worldscale 34, the same as last week and, with bunkers at $678 a tonne this gives owners approximate earnings of minus $9,500/day for a round trip, laden via the cape and the ballast leg through the Suez Canal. This compares with 270 AG/S.Korea at 46, the same rate as last week, and returning owners around $1,500/day.
Now the Suezmax sector and it was a slow start to the market from West Africa this week as the Americans celebrated Labor Day with a long weekend. The shortened week had driven the expectation that this would be a busier week than the previous few. There was a bit of an early rush as charterers pushed out well into the last decade, about three weeks ahead, hoping to take advantage of the low rates. With each cargo attracting a good number of offers there was no real increase in rates as owners seemed happy just to fix at last done levels. The amount of ships in the list and the decreasing bunker price depressed rates from 65 to 62.5 for the US Gulf. As we moved into the middle of the week the good levels of fixing continued, but rates were static, although sentiment continued its downward trend. It seems as though we have hit the bottom of the suezmax market and it’s difficult to see it rebounding in the near future.
It was relatively quiet in the Med and Black Sea this week as charterers drip-fed cargoes into the market. Fixtures continue to be done on a private basis making it difficult to judge in real-time exactly what rates are doing. As it turned out, rates dropped a tiny amount from 70 to ws67.5. Trans-Atlantic voyages were paying significant discounts, even on West Africa rates, with a few fixtures being done in the mid 50’s to the US Gulf. As the week moved along the amount of fixtures appeared to pick up and as with West Africa the majority of the fixtures were done on a private basis, again leading to uncertainty in rates. If all the ships get their subs, the list would thin out considerably and this should add some pressure on the charterers in the last decade. It remains to be seen whether there is going to be enough enquiry for owners to take advantage, but it seems the pendulum may slowly be swinging in their direction.
Looking at the Aframax markets and the North Sea and Baltic remained fairly dull this week. Tonnage lists have seen a further influx on ships which will not help the market. The fact is that rates have moved sideways since this time last week. There is no indication that things will improve in the near future. It has also been noted that there has been less fuel oil activity this week which has also further hindered the market. Looking to next week, we expect charterers to move to cover end decade stems, taking advantage of low rate levels. Labor Day in America on Monday, and Geneva gearing up for their National Holiday on Friday, contributed to a slow week in the Mediterranean and Black Sea. The lack of activity and an abundance of tonnage led to a further drops in rates. The majority of charterers are paying 2 and a half points less for Black Sea cargoes. It has also been a very quiet week in the Caribbean and we don’t predict much to change next week; the only factor to take in to account which may have a positive effect on rates is the possible tropical storms, which may cause some delays to vessels in the Gulf. Even that is wishful thinking though, and it is hard to envisage rates firming.
Moving to the clean sector and East of Suez the LR2 market has been moribund through the week, with little or no activity to move the market in either direction. Fixing activity has been almost exclusively for gasoil, backhaul from Korea to Singapore-Indonesia region, or going west, for which rates have remained steady and uninspiring.
In the West the TC2 market this week has gone from merely appalling from where it ended last week to catastrophic this week. Rates of as low 37 at 125 have been done on older tonnage. This, coupled with a substantial rise in bunker prices this week – prices were $655 a tonne in Rotterdam at the time of recording this podcast – has seen time charter earnings for a transatlantic round voyage dip below $1,000/day. These levels, as any owner will tell you, are frankly unsustainable and yet there seems to be absolutely no indication, and nothing on the horizon, to suggest any improvements in rates. So, the market remains enmeshed in a lethal quagmire where currently, as we have seen this week, there appears to be no money in refining oil in the West, no money in trading it, and definitely no money in transporting it.
The Med market is unchanged and continues to bump along the bottom 30 at 137.5 with areas like Israel, which used to attract a 20-30 point premium for loading or discharging, now only commanding 7 and half points, at very best. There have been ships circling Malta this week, hoping for business into Libya, which would show a healthy premium, but thus far nothing has materialised. Transatlantic rates are broadly similar to the Continent, but only because rates have been pared down to the bone, and there is, apparently, nothing more to give.
Thanks for listening