Shipping Podcasts finalists for Maritime Media award

Double hull VLCC’s heading to the breakers, but will it be enough? Tanker report Feb 2

By • Feb 3rd, 2012 • Category: Tankers

The Coracle tanker market podcast for Feb 2, 2012 in association with Braemar-Seascope

To learn more about the tanker markets, why not take Coracle’s Tanker Chartering course?

This podcast is supported by MozyPro – http://bit.ly/mozypod1 – Get backed up!



Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for February 2nd 2012. This report will look at the VLCC, Suezmax, Aframax and clean products markets.

We start with the VLCC sector and scrapping of double hull VLCCs has started in earnest with 4 or 5 vessels reportedly sold for demolition this week. However, for any long term increase in the freight market we need to see this trend develop significantly. 2012 will bring 68 VLCC newbuildings, of which 12 have been launched and 9 delivered to their proud new owners. 2013 already has 43 VLCC newbuildings signed up. Can we expect similar numbers of double hull VLCCs to be scrapped? We suspect not, however the worse the freight market gets, the more vessels will be appreciated for their steel rather than their oil carriage capacity. The Japanese domestic fleet requirement for crude oil has been reduced to about 90 VLCCs on consecutive voyages, so their fleet of 110 leaves about 20 being surplus to requirement which could be sold for demolition.

This week the AG VLCC market has been kicking back into gear following the Chinese holiday. Unfortunately for owners, the activity only proved how fragile the market is. A Taiwan bound cargo was initially fixed 270 at 51, then failed and was re-fixed 270 at 45. AG/West was again softer, with 280 at 32 fixed on Thursday morning off an early March laycan, proving that although bunker prices remain high there is significant downward pressure on freight rates, even off forward positions.

In a reflection of the AG, the quiet period was broken with a 10 point reduction in the W Africa/China rates. The Indian charterers capitalised on the softening market with BPCL fixing W Africa/WC India at $3.80m off 28-29 February dates, which is $850,000 less than last done on this route.

The 30 day availability index shows 53 double hull VLCCs arriving at Fujairah, of which 7 are 15 years or older and 4 newbuildings, compared to 57 last week. So far for February, we have had 91 fixtures reported from the AG for a month which is traditionally busy – last year we saw a total of 110 spot fixtures for February. The problem for owners is that we have 40+ VLCCs able to cover the 20-25 cargoes which remain to be fixed from the AG.

With the freight rate for 280 AG/US Gulf being down 3 points to world scale 32 and with bunkers down $9 to $721, owners earnings are minus $6,500/day. This compares with 270 AG to S.Korea at 48.5, down 11 and a half points down from last week and showing owners just over $14,000 a day.

Moving to the Suezmax sector and the standoff at the end of last week was ended relatively early this week, and it was the owners that blinked first. They may have had some expectation that rates would move up but charterers took the decision to drip feed cargoes and this took the wind out of owners’ sails. There was a little resistance in the early part of this week but by the middle of the week the sentiment had waned considerably and rates dropped like a stone, down to 72.5 for the US Gulf. This was followed fairly quickly by a 72.5 for the UK Cont-Med, suggesting a further drop in rates. The tonnage list remains overtonnaged, so it will take some strong work on behalf of the owners to pull rates back up. Bunker prices remain strong, which is putting pressure on owners’ returns and this is likely to help encourage resistance within the owning community. In the Med and the Turkish strait delays remained consistent at 2 days northbound and southbound all week. This did nothing to help owners’ confidence . There was only 1 day of the straights being closed, due to snow, and Novorossiysk was closed for the majority of the week. This led to a build-up of tonnage waiting to berth in the Black Sea and this may add to the list of ships waiting to come southbound through the straits.

The North Sea and Baltic aframax markets continued to soften this week, with rates crashing as tonnage lists swelled. Temperatures in the Baltic are only just starting to drop and only a very small amount of fast ice is appearing. Agencies in the Baltic expect ice conditions to worsen around mid-February. Bearing in mind these factors, charterers have moved to cover Primorsk stems whilst levels remain low and cargoes have been covered as far in advance as the 20th. Some may feel this could come back to haunt charterers if vessels run late and weather conditions prove to worsen.

In the Med and Black Sea the situation remained the same: tonnage is far outweighing enquiry. Charterers are currently able to pick ships off at will, with little to no resistance from owners. A substantial number of vessels are sitting prompt, meaning charterers can insist on fixing these low rates where earnings are at breakeven levels. The only glimmer of hope for owners is this period of bad weather which could lead to port closures and strait delays, but the situation would have to significantly worsen to have a knock-on effect on the long tonnage list.

Now we look at the clean markets and it has been a quiet week on the LR2s. The long tonnage lists pushed rates down to 85 to Japan and $2.1m to the UK Cont. Despite activity clearing away some of the tonnage, a significant excess remains and although some owners are refusing to accept the levels, they are merely being left to swing on the anchor.

It has been a similar story for LR1s. Although their fortunes have been a little steadier with cargoes up to the middle of the month being covered, there is still tonnage remaining.

MR owners with vessels in the AG remain at the mercy of charterers. The market is at rock bottom and many routes are returning negative TCE’s. The problem is quite simple: the volumes of cargo moving just aren’t there. Naphtha demand remains weak in Japan, the jet arbitrage still prefers the LR1’s on a dollar per tonne basis, and East African enquiry is as intermittent as ever. On a positive note, enquiry has picked up from last week, but rates are going nowhere fast and it looks like owners will have to weather this storm for a least another couple of weeks.

Thanks for listening