Tanker market review for week ending July 6By james tweed • Jul 9th, 2012 • Category: Tankers
Thanks for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for July 6th 2012. This report looks at the VLCC, Suezmax, Aframax and clean products markets.
There are worrying signs for some ship owners and operators as Commerzbank have decided to move out of the shipping sector. This means that refinancing vessels will become even more problematic and this is against a bleak outlook for an over-tonnaged VLCC market, fearful economies and falling oil demand. These facts have all contributed to the worst VLCC rates we have seen so far for 2012, with daily earnings which are less than operating costs. Most vessels in the East have been casting their eyes to West Africa for W Africa/China: this has the advantage of slightly improved earnings, however it means locking into these rates for a two month duration. Although, with bunker prices increasing it is difficult to see these kinds of levels being sustainable, so we do expect rates to increase from this load area.
In the western hemisphere there have been a few fixtures West Africa/West but with a weaker Suezmax market, some cargoes have been divided into 1 million barrel parcels. We are currently rating W Africa/US Gulf-UKCMed at 260 at 45 to 47.5, whilst East has been reported at 260 at 37.5.
The 30 day availability index shows 58 double hull VLCCs arriving in Fujairah, of which seven are over 15 years, compared to 59 last week. So far for the month of July, we have had 80 fixtures reported, leaving about 25-30 cargoes remaining for the month, against which 46 vessels can make the cancelling.
The freight rate for 280 AG/US Gulf is down 2 and a half points to 25 and with bunkers up $38 to $616 a tonne, owners’ earnings are minus $10,900 a day. That compares with 270 AG/S Korea at 35, down 5 from last week, and making owners nothing each day.
Moving to the Suezmaxes and the West African market finished at fairly low levels last week. The bunker price may have influenced owners to let rates drop a touch, but it was difficult to argue with the fundamentals. There was a slightly different feel at the beginning of this week, and there was an opportunity to push rates a bit further when the market felt that the second decade was completely covered.. but then we saw some earlier dates enter the market and the list was a bit tight. The owners in play spent their day trying to drive rates and couple of them managed to squeeze 65 for the US Gulf out of the charterers. As some owners looked to take advantage of the situation and move rates up another couple of points it became evident that not all owners were on the same page and 62.5 for the Gulf was quickly fixed and then repeated. This really took the wind out of the market’s sails and the amount of fixing that was being done under the radar didn’t help at all. If all the activity that was going on was being reported, then there is sufficient evidence to suggest that the market would be higher. Looking to the future, the dates look to have moved to the 25-30 window – with the exception of a few straggling cargoes – and there looks to be sufficient tonnage for that period.
It has been a relatively quiet week from the Black Sea as charterers took a step back after quite a busy week last week. The large majority of the Black Sea cargoes were being fixed quietly, and consequently rates stayed at 140 at 70. The second decade looks to have been completed and it is not unreasonable to suggest that we will see last decade dates before the week is out. The big news this week for the Suezmax market was the Aframax market. Rates here have moved to the equivalent of 130 at 74, so this attracted some of the Suezmaxes away. The resultant flood of available ships swiftly calmed the market down and stopped it going any higher.
Looking at the Aframxes in more detail and the week started off with optimism that rates may make a slight upwards movement due to a very busy Monday. However, with planned maintenance due to close the port of Primorsk from 17th July until 21st July, this will leave the market with twelve fewer cargoes in July and this has put further pressure on freight rates. As the week progressed, activity for the North Sea and Baltic Aframax markets remained fairly steady, although one charterer managed to push Primorsk/UK Cont rates below 100 at 75. Cross-North Sea rates remain at 80 at 95, however, with activity generally low, North Sea rates will also see softening. The market will really be tested when the outcome of a quoted cargo, with as many as 8 offers in is concluded. The only factor which may prevent rates softening is the fact that the bunker price is increasing.
Carrying on from the week before, the Mediterranean and Black Sea continued to firm. The sentiment was bullish and realising this, a number of charterers came into the market to cover quickly as rates were rising. This meant that similar cargoes off similar dates shortened the tonnage list quickly, meaning those charterers that chose to try and wait it out had to eventually face reality and pay these high rates. One charterer was rumoured to agree as high as 80 at 127.5 for a cross-Mediterranean voyage, while another charterer fixed 80 at 130 for a Black Sea cargo to Turkey. Since this excitement, activity has dropped off and the stronger sentiment has faltered. There are few cargoes currently available, and those few that at first were thought to be in distressed positions, don’t seem to be anymore. At present, there is a stand-off between owners and charterers, but with a replenishing tonnage list and a distinct lack of enquiry, the market will come off further.
Turning now to the clean markets and in the East the LR2s started off strong, with rates reported at the start of the week in excess of 100 to Japan. Rates to the West stayed firm throughout the week as there was no attraction for owners to end up in an extremely moribund western market and so we went up through the 2.4 mark to a reported 2.5 million to the UK Cont. Strong enquiry levels for gasoil from the Far East to the West are coming up against a lack of new building ships to carry their product cheaply. It will be interesting to see if traders can move the product at LR2 prices, who are showing numbers around $600,000 over last done on an uncoated vessel.
The LR1s haven’t really had much confirmed on straight TC5 runs this week. Coming from a starting point of the 130, which was fixed for a prompt loading last week, owners have been trying to achieve similar rates. Rates of $2 million have been paid for jet fuel AG/West due to the lack of incentive to end up in the region. However, the most telling development this week has been 4 or 5 owners offering into a last decade naphtha cargo at 130. This should imply that levels will definitely take a tumble in the coming week, with most market watchers predicting next done to be around 120 or less.
In the West there was some positive news! Statoil are shutting down production due to an industrial labour dispute, which to some effect may tighten feedstock supplies from Europe and can encourage arbitrage and tonne miles to appear. Despite that, time charter returns have confounded the Pools and caused dismay to ship owners. The US is awash with gasoline and TC2 cannot simply rely on the likes of Valero, Total and the other non-arbitrage players in the transAtlantic market to keep volumes up and tonnage lists at a half decent length, instead of prompt ‘overhang’ all the time. 37 at 90 to 95 is a level at which players will cease operations, and some North West European refiners are simply breaking up cargoes and barging cross-UK Cont, while margins on the oil are so weak. The Med market suffered once again this week as the ever long tonnage list has taken a bite out of owners already withered earnings. Cargoes are abundant but with a long tonnage list the conference rate became unsustainable and levels were cut down to 130 for Cross Med.