VLCC owners dust off the manual of how to fix in a rising market! Tanker report Nov 10By james tweed • Nov 11th, 2011 • Category: Tankers
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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for November 10th. This report will look at the VLCC, Suezmax, Aframax and clean products markets.
As if to prove that VLCC owners do still have backbone when given the opportunity to flex it, the market has continued to rise for AG liftings as the stream of cargoes for end-November stems continues unabated. Initially rates started to push forward as the bunker price in the AG moved to $700 /tonne, causing an initial rate push. Since then, the volume of cargo has meant that even the most customer-friendly owners realised that an increase in rates was on the cards. It’s been so long that some have had to look in the company handbook for what to do in the case of a
rising market. The recently oft-skipped Chapter 6, redundant over the last few years, is the important one. It reads: (1) Offer above last done; (2) Counter above last done; (3) Agree to a rate above last done. Usually this chapter is missed in favour of Chapter 5 “Usual Operating Procedure”, which goes (1) Plead with charterer for the first counter to maintain the “relationship”; (2) Offer to repeat last done; (3) Are the earnings positive – YES/NO? If YES fix 2 and half points under last done. If NO, repeat step (2) but with more stress on the “relationship”!
Although the market is rising and getting more exciting, in real terms the benefit of higher rates is less inspiring. Even 270 at 57.5 AG/East makes only $15,000/day with bunkers where they are. That might be enough to delay Chapter 11, but it’s not sufficient to pay the costs of operating and financing the ship. For that, we need to see 270 at 67.5 on today’s costs.
AG/West is where the initial tremors of the increasing bunker prices were first felt – 280 at 35 being fixed steadily, increasing to 40 as the week progressed, and there are still between 5 and 10 cargoes uncovered for the month.
W Africa is about to produce some excitement for owners, despite the lacklustre week for suezmaxes. The larger cargoes going East look like commanding a premium as there is a shortage of available tonnage in the Atlantic. Partly due to national holidays, the Indians, notorious experts in a rising market, have remained quiet out of W Africa while the firm sentiment has built up in this area. We expect next week to be busier with Indian charterers and it could start to get very interesting if the anticipated 5 or 6 VLCC stems materialise and ballasters prefer to remain in a strong AG market.
The number of VLCCs arriving at Fujairah over the next 30 day shows 50 double hulls, compared to 66 last week. The month of November has so far yielded a total of 117 fixtures. We expect 5 to 10 more stems for this month.
The Suezmax market in West Africa was the week that never happened. Towards the end of last week there was a degree of hope in the owners camp. With no VLCCs available for the end of November expectations were high for a busy week on the suezmaxes. However, the cargoes never materialised. Only a few stems are left for the balance of the month and rates are expected to remain flat for the foreseeable future. The Black Sea and Mediterranean markets gave no refuge for owners with only a handful of fixtures from each, revealing sizeable drops in rates each time.
North Sea aframaxes also continued to see a lack of demand this week, which has inevitably forced rates to soften further. We anticipate rates to further soften into next week too, as Primorsk cargoes continue to get covered, leaving a fairly ugly tonnage list. Primorsk itself is now fixing in the 23-25 November window, leaving only a small amount to cover for the remainder of the month. The last done for Primorsk/UK Cont is 100 at 80… It remains to be seen whether charterers can push levels below that 80 barrier. If tonnage continues to build up and fuel demand doesn’t sustain, then rates will certainly struggle.
Fixing levels in the Mediterranean and Black Sea have been at their bottom this week, as tonnage is plentiful and enquiry not enough to satisfy it. Some owners are struggling to make economic
sense of particular cargoes as a result of longer ballast legs, which they have to factor into their costs. What is evident is that where a ship becomes available geographically speaking makes a world of difference with regard to whether they can be competitive for the next cargo. As owners’ earnings are currently minimal to breaking even, everything counts.
Now we turn to the clean markets and in the East the MR market has gained some momentum this week with a steady flow of long haul cargoes being fixed on good quality vessels. While there has been no jet moving west, there has been a fair amount of naphtha fixing east and plenty of UMS and gasoil heading down to E Africa. As a result, the tonnage list looks relatively tight up to the 25th Nov, especially for well approved, big cubed, naphtha suitable ships. Owners see this as a focus and are looking to spread their bullish sentiment through this route as a start.
There has been little or no activity on the LR2s and LR1s struggled to push levels up to compensate for the rising bunker prices.
In the West and on the Continent it has been a week which saw the market drift more or less sideways and given the $20/tonne rise in bunker prices at one stage this week, this means that earnings actually fell… There was a reasonable clear out of early tonnage this week, with some 8 ships confirmed and a further 4 or 5 on subs, however, the weight of tonnage is such that this can be absorbed without any noticeable contraction in positions.
Thanks for listening