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The charterers are back in control of the VLCC tanker market….

By • May 11th, 2012 • Category: Tankers

The Coracle tanker market podcast for May 11, 2012 in association with Braemar-Seascope

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Thanks for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for May 11th 2012. This report looks at the VLCC, Suezmax, Aframax and clean products markets and please remember, we love to get your feedback, so please leave your thoughts as a comment on ShippingPodcasts.com and for this May, if you’re thinking of doing a Background to Shipping course (http://coracleonline.com/courses/ushipping.htm) , we’re offering 20% off at the moment if you use promo code back12.

Although VLCC owners have resisted a collapse, the VLCC market continues to weaken: we’re seeing points eroded every time a fixture is concluded. Charterers have done well to regain control of the market and are now forming an orderly queue, picking off ships quietly and unnerving owners. AG/West has been busy with a number of Basra stems fixing off end month loading dates for western destinations, and this has kept rates at 280 at 40. The list is starting to look more favourable to charterers but we don’t expect any huge drops, just more of a slow erosion of rates.
West Africa reflected the weakening AG, where 260 in the mid 60’s was achieved last week, this slipped to 60, and even just a shade below. West Africa to western options has not been fixed this week, despite a firming Suezmax market. Indian charterers began covering their West Africa programme for the month of June; the softening tendency in the AG market attracted the eastern ballasters, creating competition for the genuine Atlantic positions and enabling charterers to push rates lower.
The 30 day availability index shows 61 double hull VLCCs arriving at Fujairah, of which 8 are over 15 years old, compared to 59 last week. So far for the month of May, we have had a total of 116 fixtures reported, which should leave about 10-13 left to cover and 32 vessels available for May laycans. The freight rate for 280 AG/US Gulf is 40, the same as last week. With bunkers at $687/tonne, down 31 from last week, owners’ earnings are actually up from $9,000 a day to $11,500 a day. This compares with 270 AG/S Korea at 55, down 5 and returning owners nearly $27,00 a day, down from $32,000 a day last week.

There was a disappointing end to last week in the West African Suezmax market as one charterer managed to fix 65 for the US Gulf, which was a drop from the previous fixture. It didn’t seem to be wholly reflective of the Suezmax market and owners took the opportunity to start again and work to get rates higher again. The next fixture done was 71.25 to EC Canada, which didn’t get the market back to the previous levels but went some way to getting it there. One would have expected a slow start to this week with London on holiday, but it kept moving and charterers kept fixing. With the volume of business entering the market, owners kept on pushing rates as hard as they could. There was still a good amount of slack in the list but owners’ sentiment was helping maintain the rates. By the middle of the week, West Africa to the UK Cont-Med had moved to 72.5 and US Gulf rates were following suit as charterers tried to finish off their May dates. We then saw a clutch of West Africa/East cargoes come into the market, which pushed the East rate up to 82.5. This helped drag the US Gulf rates up to 70. There were a couple of early cargoes left in the market and these were attracting big numbers from the remaining owners. This should lead to a further increase in West Africa rates. We started to see June dates this week, and the fact that charterers are fixing forward would suggest that they do not see a massive change in sentiment coming soon in West Africa. The Black Sea/Med market followed a similar path to West Africa and with a good mix of cargoes in the market, ranging from Black Sea-Med, cross-Med and Med/East voyages, owners had plenty of options. With the consistent level of fresh cargoes entering the market it was inevitable that we would see some increase in rates.

Now the Aframaxes and in the Baltic we saw rates drop, further despite owners’ best efforts to inch fixing levels upwards. After a couple of charterers had to pay 100 at 80, 2 and a half points more than last done, to compensate for the optionality they required, owners attempted to insist this was the new level of fixing. However, charterers remained patient and when one charterer succeeded in paying 100 at 77.5, it was only a matter of time before all of them did, with all remains of bullish sentiment disappearing … so much so that rates fell a touch more to the new conference rate of 75. Meanwhile, the cross-North Sea market has been fairly inactive. It has also been quiet In the Mediterranean and Black Sea. Tonnage lists have continued to lengthen and so charterers have had their pick of boats, successfully putting pressure on rates.

Turning to the clean markets and East of Suez the LR2s have been busily refusing to accept the inevitable fall as their ships build up in the Middle East region. Rates started the week at $2.5m to the Continent but fell to $2.25m. LR1s have been extremely quiet this week. MR activity from WC India to the East has been quite active, with rates edging up a few points and a ship down to E Africa was reported to have been paid in excess of worldscale 200. Tonnage remains plentiful on the prompt position, which continues to be a difficult millstone for the market to shift, combined with the bigger ships gathering in the region, the forecast must remain gloomy for the week or weeks ahead.

In the West there have been decent levels of activity from the Continent this week, but due to a very depressed US market, rates have remained largely flat. Despite the sixth week running of larger than expected draws in the gasoline stocks in the US, rates have remained at around 37 at 140. West Africa continues to attract a significant premium over TC2, with charterers currently having to pay at least 10 points more. There has been strong interest in moving gasoil from the Continent to Argentina over the last couple of weeks, and this has resulted in rates on MRs firming up to a level where it’s started to make more sense to take LRs instead, despite the increased lightering costs. Looking ahead to next week, as long as the Caribbean remains as firmly in the doldrums as it is currently, there should be no shortage of ballasters from the eastern seaboard. This in turn will keep a lid on TC2.

Thanks for listening