A review of what happened in the tanker markets this week. Mar 23By james tweed • Mar 23rd, 2012 • Category: Tankers
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Thank you for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for March 23rd 2012. This report will look at the VLCC, Suezmax, Aframax and clean products markets.
We start with the VLCC sector and a comment from an optimistic analyst at Cantor Fitzgerald: “A solid rebound in VLCC rates could begin late this year”. She makes the very valid point that VLCC tonne-miles have increased over the last two years as China and India increase their imports of crude oil from farther afield than the AG – mostly from Africa, South America and the Caribbean. No one can argue with this growth, however one must also realise that most Iranian crude has now been switched from the EU to these markets, thus reducing tonne-miles. Also, just because we have seen significant growth doesn’t mean that this will go on infinitely. We fear this kind of attitude leads to the kind of bubble-burst economic thinking that has led to the various recent crashes, as well as the VLCC market crash we are slowly recovering from at present. A cynic might highlight that this statement was made at the re-financing of the DHT Holding $80m fundraiser.
The AG VLCC market started the week on a buoyant note. A Singaporean charterer had tried in vain on Friday to convince bullish owners that 270 at 67.5 was a good rate for Singapore discharge, without convincing anyone it was the case. However, over the weekend a shipyard-backed vessel failed her subjects and panicked. She immediately booked 66 and caused unease amongst her colleagues in position. As the week progressed, a few local, COA and friendly deals meant the rate was eroded to 265 at 64 and on Thursday Korean charterers were in the market for Ras Tanura/Onsan and attracted 5 offers. Charterers are trying to break 60 and it looks like a relatively vintage ship is considering such levels.
West Africa has been steady for those fixing W Africa/East and has basically reflected the AG market. As the AG strengthened, the ballasters pushed rates to 70 and hence, as the AG softened, charterers have been able to push rates back down. W Africa/China is now trading at 260 at 60. Indian charterers continued to tick away their April West African programme. With a few cargoes still remaining for end April dates we expect the steady activity to continue in the coming week. We are assessing W Africa/WC India at $4.3m and W Africa/EC India at $4.6m.
The 30 day availability index shows 50 VLCCs arriving at Fujairah, with only three over 15 years old, compared to last week’s total of 50. So far for the month of April we have seen 45 fixtures, so we are nearing the halfway stage and charterers look like they are starting to wrestle control of the market back from the owners’ grip. The freight rate for 280 AG/US Gulf is 37, the same as last week so with bunkers down $5 to $737 a tonne, owners earnings for the round trip via Suez are $1,700/day. This compares with 270 AG/S Korea at 67.5, up 12.5 points from last week and making owners’ $34,500/day.
Now the Suezmax actor and with the large rates being seen from West Africa, it was rather predictable to see charterers withdrawing enquiry and taking a step back from the market. Invariably this has the desired effect of calming the market and after a quiet finish to last week, this week started in a similar vein. There was a bit of disparity in rates, with 92.5 for the US Gulf being done alongside 105 to the UK Cont-Med. It didn’t take long for the market to correct itself down to the usual differentials. Fresh W Africa cargoes were few and far between this week, and even replacements seemed to attract competitive rates. By the time we saw some good activity in the middle of the week, the cargoes were attracting upwards of 5 offers and the writing seemed to be on the wall. Charterers have
covered the large majority of the first decade and there are still some good ships left that can make the 10th of April. Should the cargoes continue to be drip-fed into the market, then it is difficult to see rates improving. The market is, however, balanced enough that if we get a rush of cargoes the rot will quickly stop. With the early April stem dates being confirmed, we saw some Black Sea activity after a week’s pause. As expected, rates followed closely behind the cross-Med rates and the first fixture we saw was 140 at 100. This was followed up by 97.5, showing a minor correction. Both these cargoes fixed with multiple options which may have been the reason for the slightly larger than normal premium over the cross-Med rates of 90. There was a decent level of Mediterranean activity this week, which has certainly helped the market as it watched the W African market move downwards. There was lots of activity for good quality ships in the eastern markets this week and we saw a raft of AG/West cargoes fixed, although rates didn’t move very far with 52.5 being fixed for AG to the UK Cont-Med. This was a demonstration of how keen owners were to get back west and try to take advantage of the recent rate rises.
Now the aframaxes and in the Baltic and North Sea, the tonnage lists have been slowly building up. Charterers were fully aware of this, and successfully managed to bring rates down. Any bullish sentiment owners had quickly died as the reality of simple fundamentals set in. It has been a steady process whereby rates have come off, and at present fixing levels are 80 at 90 for cross-North Sea voyages and 100 at 95 for Primorsk/UK Cont, where there is still an ice restriction in place. For non-ice vessels, charterers are now paying 100 at 85, but these levels are expected to come off further.
Looking at the clean markets and it was a complete non-starter of a week on both LR1s and LR2s both east and west of Suez. There was very little activity to report on, and that which has been done has only succeeded in cementing rates firmly at 100 to Japan for LR1s and 83.5 for LR2s. One fixture of note is the Alburaq, reported on subs at $1.9m from Taiwan to the Continent for Vitol, sadly only as it’s disappointingly cheap and adds more pressure to those ships that remain looking for cargoes. The AG MR market has attempted to revive itself this week with some better results for owners being available on certain voyages due to an increased activity and a position list stacked with a lot of uncertain positions opening ex-Iraq.
In the West and on the Continent, TC2 this week has reverted to a predictable pattern, with charterers taking a good look at the position list and staying out of the market, allowing owners to chase the levels down. What started the week as a nominal 150 market is now 137.5 and, in all likelihood, is probably still under pressure with tonnage availability for March still being long. With charterers starting to look at early April dates, the risk of the prompt overhang of tonnage missing March stems and acting as a brake on April tonnage is ever present.