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Doom and BOOM! VL’s terrible. Western Suezmax and Aframax better, esp in Med

By • Oct 13th, 2011 • Category: Tankers

The Coracle tanker market podcast for Oct 13th, 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 October 13th. This report will look at the VLCC, Suezmax and Aframax markets.

Aristotle Onassis once said “After a certain point, money is meaningless. It ceases to be the goal. The game is what counts.” We wonder if this has come back to haunt the industry in reverse. Shipowners in the AG are losing substantial sums of money and simply trying to keep ships moving. There was a time when the AG VLCC market was like a poker game. Charterers got their dates and assessed when they should put their cargoes in the market. Sometimes they got caught and paid the price, and owners won big. Other times they forced the market to the floor and were winners themselves. These days there is virtually zero volatility, and most of the time the market has about as much confrontation as a game of patience. This week we did briefly see some owners putting up resistance for AG/East cargoes being lifted at the end of October. In a pattern often repeated, the western owners were trying to push rates up, refusing to trade below worldscale 45, but then a Korean shipping company once again stepped in to save the blushes of their countrymen and fixed 267,500 at 43. Evidently “local relationships” still hold firm, even when one party is bleeding money through the nose. The old adage that a chain is only as strong as its weakest link rings true, and there are just too many weak links in this market.

West Africa has seen significant improvements for the earlier dates on the back of an improved suezmax market. However, as is always the danger when the AG is flat, ballasters will kill any markedly improved rates. For W Africa/US Gulf off early November dates, 260 at 60 was achieved. But with 260 at 45 fixed for W Africa/East a couple of times, this US Gulf rate must be down to the 50 level.

The 30-day availability index shows 59 double hulls and 1 single hull arriving at Fujairah, compared to 72 doubles and 1 single last week. So far for October we have seen 96 cargoes covered and we expect at least 110 cargoes for the month. The freight rate for 280 AG/US Gulf is 32 and with bunkers up $32 to $667 a tonne, owners’ earnings are minus $11,750 a day. This compares with 270 AG/S Korea at 43 and returning owners minus $1,830/day.

Now the Suezmax sector and the market expected there to be a number of cargoes left to fix in the 25-30 window. There was a surprising development when the West Africa market produced a couple of cargoes in the 20-25 window at the end of last week. Understandably, with charterers leaving these cargoes so late, the cargoes came up against some strong resistance from owners. Rates continued on their upward trend and by the end of last week, we had seen 95 fixed to US Gulf. At the start of this week, charterers still had cargoes for October dates and rates continued to rise – to 105 for UK Cont/Med, with the US Gulf rates following closely behind. The pressure seemed to tell and charterers looked to go down the VLCC route – not necessarily a viable option for October dates, but moving into November dates the VLCC tonnage was available. This led to a slight quietening of the suezmax market, although sentiment was little changed. There was added spice coming to the market from the Med/Black Sea market, which was demonstrating good strength. We are yet to see November dates in earnest on the suezmaxes, however it is expected that charterers will try and sit back as long as possible in order to take some of the heat out of the market. The tonnage list looks tight up to the first of the month, though it is difficult to know how owners will react after a couple of quiet days. The confidence the owners had last week in the Med and Black Sea markets continued into this week, and if anything, increased. The immediate news over the weekend was the threat of increased tonnage having to queue to go through the Turkish straits, instantly doubling the length of delays. With rates for cross-Med sitting comfortably in the 90s, owners seized on the uncertainty and pushed the Black Sea/US Gulf rates up to 95, hinting that the UK Cont-Med rates would be over 100. This led to a busy couple of days for charterers at the beginning of the week as they looked to cover their positions with safe ships. Through various stages, the Black Sea market jumped from 105 to the UK Cont-Med up to 145! This of course meant cross-Med rates shot up as well as owners took advantage of nervous charterers. As the week moved on, doubt started to build over the enforcement of the new Turkish straits regulations and at the time of recording this podcast, it looks like the new rules will not be enforced. This will naturally lead to a reduction in the delays through the Dardanelles: assuming of course that the weather remains clear, which is by no means a certainty at this time of year. The October programme is now complete from the Black Sea so we should have a couple of calmer days as charterers wait for their November Novorossiysk dates. It was interesting to see ships ballasting from the East to fix from the Med and Black Sea, which by the end of the week had maybe helped push the rates down a bit…

It’s been an interesting week for aframaxes in the West, with an improvement in rates seen in every aframax western market. Following last week’s spike in the Mediterranean and Black Sea markets, sentiment in the North Sea and Baltic continued too, as owners started to become bullish with their rate ideas. The tonnage list tightened as the week progressed as owners decided to ballast Continent ships towards the Med and Black Sea, where earnings were significantly better. We are not even half way into the month, but the majority – if not all – of the month’s Primorsk stems for October have now been covered. It is still unclear where this market is heading into next week. An important factor will be whether ships which are expected to receive discharge orders actually do so, and then reappear on the tonnage lists. The North Sea has experienced a steady flow of activity also this week, and for a typical cross-North Sea voyage, charterers can expect to pay in the region of 80 at 115 to 120. In the Med and Black Sea, fixing rates got even better for owners. Last week’s rumours became this week’s reality. Turkish Strait delays increased to 5 or 6 days, meaning that charterers looked further ahead to cover their Black Sea programs. The consequence of this was more enquiry to an already bullish market. Seeing this, other charterers moved to fix their cross-Med cargoes with a “get in, get out” approach in the rising market, which in turn added to the hype amongst owners. As the Suezmax rates jumped they became uncompetitive on a part cargo basis, meaning that there was no reprieve for charterers in that respect. Again, as with the Suezmaxes, this month’s Black Sea program seems to be more or less covered and coupled with restrictions looking like they will be reduced in the Turkish Straits, and barring no further bad weather, delays will decrease. These factors mean a large list of possible tonnage is building and rates could drop very quickly.

Thanks for listening