The Suezmax sector provides a hot spot in the tanker market. Relatively. Sept 15By james tweed • Sep 15th, 2011 • Category: Tankers
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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for September 15th. This report will look at the VLCC, Suezmax, Aframax and clean products markets.
This week we are looking for the positives in the VLCC market but there are a few which can offer those owners returning from their superyachts much encouragement. For example, a VLCC, even in this terrible market, is far cheaper to run than a superyacht and does offer some hope of fabulous returns in the future. By the end of this year there will be 85 VLCCs which are over 15 years old. This represents just under 15% of the fleet that will be unacceptable or not preferred by major oil companies. With VLCCs not earning enough to cover their costs, owners will start to look at them as a steel asset rather than a shipping one and sell for scrap. Perhaps this is a glimmer of hope if demand continues to increase and Chinese plans for refinery expansion follow through. Another reason for long term positivity is the recent falling out of favour of the nuclear industry after the incident at Fukashima. Three or four years ago the nuclear power generation industry received a boost as politicians all over the globe decided that nuclear was a “greener” alternative to fossil fuels, together with renewable energy sources. After Fukashima, politicians have been very tight lipped on nuclear energy, and “renewables” have proven to be expensive and inefficient. Fossil fuel power generation is yet to be overtaken for a cheap energy course, and the industry is becoming more environmentally aware. As we have previously said, tanker demand has a long way to go to outstrip supply and with the global economy lurching from one financial crisis to another, it is difficult to see when the slack will be taken up. In terms of the spot market, a record low, 265 at 42 was fixed on a newbuilding VLCC this week for a voyage AG/East, and the Saudis fixed 280 at 34 for AG/US Gulf: and they did so about six times in a row!
We have seen a number of W Africa/US Gulf fixtures concluded at 260 at 46, with 42 being fixed a few times to the East, but there is more of a shortage of vessels off early October dates and there could be room for some improvement there.
The 30 day availability index show 57 double hulls and 2 single hulls arriving at Fujairah, compared to 73 doubles and two singles last week. September has so far produced 123 cargoes fixed in the spot market with only a couple left to go, and so far for the month of October we have seen 4 cargoes covered.
With the freight rate for 280,000 tonnes AG/US Gulf at 34, the same as last week, and with bunkers at $657 a tonne, down from 678 last week, owners approximate returns are minus $7,800/day for a round trip, laden via the cape and ballasting through the Suez Canal. This compares with 270 AG/South Korea at 43, 3 points less than last week. and returning owners minus $1,000 a day.
Now the Suezmax sector and last week the West Africa market finished with a bit of a flourish, although this had little immediate impact on rates. What it did do was put a little pressure on the tonnage list, which now looks shorter than it has done for some time. It is difficult to say that rates rebounded this week, but we certainly saw some improvement from the low of 62.5 of last week. Although Monday was relatively quiet, Tuesday brought good levels of enquiry as charterers pushed out into the first decade of October. It took a while for charterers to realise the true state of the market but rates moved up to 70 for UK Cont-Med fairly quickly. There were a couple of end September cargoes that were left behind, and with a tightening list developing, charterers were put under some pressure. Trans-Atlantic rates followed the UK Cont-Med rates up to 70, and barring the odd anomaly, rates looked solid at these levels. The pressure continued on into the first decade of October, however owners seemed to miss an opportunity to drive the rates further by being happy to repeat last done. There is a shortening list of VLCCs in the West which has yet to have an impact, but the opportunity seems to be there for owners…. should the enquiry keep coming.
Last week the Black Sea market seemed to be bumping along the bottom with a subtly thinning list bringing possible rate rises to the forefront. The big question was whether owners would seize the day and push rates higher. A couple of charterers left their cargoes late this week and the list for the start of the last decade was very tight. There were a couple of Black Sea cargoes, and one cross-Med cargo that attracted some large offers, with charterers fighting over the few remaining ships. This resulted in a jump in the Black Sea market from 70 to 95 in a single fixture! While this rate probably looked artificially high, the sentiment was very strong amongst owners and they managed to maintain relatively high levels. By the time the end of the week came round, rates had settled down to around 80 for cross Med , with a slight premium for the Black Sea. Unfortunately for owners, charterers managed to complete the spot program this week, so there will be a pause in Black Sea activity for a few days.
Looking at the Aframax markets and the North Sea and Med markets have seen spurts of activity, but nothing significant enough to affect a noticeable change in rate levels. For Primorsk loaded cargoes, charterers are consistently paying 100 at 72.5 for a normal Continent discharge. Cross-North Sea voyages are paying 80 at 95, however it seems for WC Norway or Sweden loads, there is an unofficial 2.5 point premium to account for the extra ballast. At present, the internal factors suggest next week will follow suit, but external factors may take their toll. The port of Primorsk is currently closed due to bad weather, which could lead to delays and, a jump in rates if it continues. Also, one charterer, through a case of bad luck, needed a very prompt replacement to substitute a ship which lost its own anchor, and had to pay 80 at 120.
Down in the Med and Black Sea, rates have remained unchanged despite steady and consistent activity. There are parties taking place in Genoa over the next two days, which will have added to the level of fixing taking place, as some people will have tried to cover their programs in advance. However, this hasn’t yet had the desired impact owners were hoping for.
We now look at the clean markets and East of Suez the week started slowly with Korean and Chinese holidays. The week started with a fixture on Monday for AG/Japan, 55 at 137.5, which was a significant, though expected, drop from last week’s levels. The build-up of prompt tonnage was too much and since then , as the markets have slowly arisen from their slumbers, we’ve seen numbers continue to drop, with 135 put on subs a couple of times and rates to the West reportedly back below $2 million.
The LR2s have seen little activity in the Middle East region as the majority of action was out of the Far East and North Asian region for gasoil stems into Singapore, Indonesia and to the West.
It has been another depressing week on the Continent, with rates hovering around 37 at 125 to 130, depending both on how aggressive the charterers have been feeling, and on whether the vessel concerned has been discharging on the Continent or ballasting in. What this translates to on a round voyage with the current bunker prices are voyage earnings of just over $1,000/day. Therefore, with margins and earnings pared down as far as they are, as well as bunkers still being sky high, it is becoming even more important to fix on the vessels’ dates with minimal ballast from the previous discharge port. Stock figures this week added to the pain, showing a build of 1.9 million barrels versus an expected draw of 500,000 barrels, meaning that on a purely trading basis it’s pretty much impossible to put a deal together.
Thanks for listening