How extreme weather is affecting the tanker markets, and more news for Aug 31By james tweed • Aug 31st, 2012 • Category: Tankers
Thanks for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for Aug 31st 2012. This report looks at the VLCC, Suezmax, Aframax and clean products markets.
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While most of the shipping industry laments the increased risks of shipping and the meagre rewards, we should also remember the 177 seafarers who are still held hostage in Somalia. The anti-piracy tactics of armed convoys and guards have greatly increased the protection for vessels and can be considered successful, but the task remains to return those held ransom to their families.
Meanwhile in the AG VLCC market, the mystery remains: why fix your ship at below operating costs? The willingness of owners to continue this trend has meant that they are paying for the pleasure of transportation for their clients. By offering this service they are also increasing their maintenance costs, and it seems that for one reason or another, the layup option seems to have been taken off the table. There are a few owners who have said they are unwilling to fix at these levels. However, unfortunately for the three or four who refuse to trade, there are five or six who are willing to accept the prevailing levels. Owners have been adjusting ballast speeds to super-slow and other money saving methods, but this seems to be perpetuating the trend. This week has seen charterers fixing steadily, drip feeding the market. Most cargoes have attracted offers until a full complement of 8-10 has been received and rates of previously done or lower have been concluded. Even in the face of rising bunker prices, AG/West has remained at 280 at 23 via Cape and in some cases, 22 via Suez. This highlights the fact that fixing via the Suez Canal is a huge saving on bunker costs.
The 30 day availability index shows 53 VLCCs arriving at Fujairah, of which five are over 15 years old, compared to last week’s total of 55. So far for September we have seen 59 VLCC fixtures reported from AG, compared with a total of 116 for August. Despite resistance from those owners unwilling to trade, those willing to continue to conclude business at present freight levels are more than sufficient to satisfy charterers’ requirements. It remains to be seen how sustainable present freight levels and daily earnings can be.
Looking at the Suezmax sector and this week the West Africa market maintained reasonable levels of activity without inspiring a noticeable improvement in rates. Cargoes have been taken on by owners rapidly, and the lack of resistance has led to rates mirroring those from last week. West Africa / US Gulf still sits at 55 with the standard 2 and a half point mark-up to the US Atlantic Coast & UK-ContMed. Whilst most of the early vessels have been accounted for, the 2nd decade of September is overloaded and will soak up any imminent demand. With cargoes entering 3rd decade dates, this does not provide much promise for those owners who have been sitting tight. Unfortunately, with the Mediterranean not offering much respite, it looks like many of those owners across the Atlantic who can make these dates will opt to ballast into the West Africa region and perpetuate or even undercut current rates.
In the Med and despite a few eastbound cargoes fixing, activity has been low. Voyages to the Far East have been achieving $2.9 to $3 million, with a trip to India fetching $2.2m. Cross-Med fixtures have been scarce with a short Arzew / Lavera going for 130 at 65, offering little perspective on the actual market. Worryingly a Mediterranean to US Gulf run was fixed at just worldscale 47.5. In the Black Sea, a couple of charterers have been active, with a market rate of 140 at 55 meeting little resistance from either party, and toward the end of the week 52.5 was fixed. Whilst the odd fixture east should have lightened the load, the position list is so bloated that realistic owners will want to fix and get out of the market as soon as they can, so eastern runs should be attractive.
Now the Aframaxes and with a short fixing week following the UK Bank holiday, activity has been marginally better than the previous two weeks. Rates in the Baltic remain unchanged with the market still over-tonnaged and demand quieter as expected in the month of August. TD17 remains flat at 100 at 60 and we expect no change looking in to next week. Cargoes from the ports of Primorsk and Ust-Luga are currently fixing in the 10-15 September window. North Sea demand has been more or less non-existent with TD7 rates also flat at 80 at 85.
In the Mediterranean and Black Sea, it has been a very quiet week again. Compared to the available tonnage, enquiry has been minimal. Owners are accepting 80 at 77.5 for cross Med voyages, and from the Black Sea 80 at 79, which we estimate is close to breaking even in terms of earnings.
Further west in the Caribbean, with both the Amuay Bay refinery fire and hurricane “Isaac” causing some uncertainty and delays, one would have expected freight rates to move upwards on the back of it. Rates did firm slightly since this time last week to currently 70 at 95, however the Amuay Bay failed to have much impact and hurricane “Isaac” is not expected to have a lengthy impact. This of course, does not help the market or owners, but many will be pleased that hurricane “Isaac” is not expected to cause the same devastation as hurricane “Katrina” did seven years ago.
We’ll turn to the clean markets now and East of Suez the LRs have been sluggish this week, with little fixing activity. A few LR1s taken on subs show a steadying of recently falling levels. The LR2s have been making a push to claim back some of the points lost over the last few weeks as the list looks very awkward for available tonnage. Delays in North Asia with the typhoon hitting Korea have also created some uncertainty of positions in the AG for 2nd half of September, although the West remains uninspiring for owners.
In the West and two dynamic events occurred this week that in themselves could be the push this market needs to re-adjust and settle upwards. Amuay Bay’s storage tank explosion and immediate loss of (local) supply was promptly covered in by Hess, Citgo and others fixing in from the US Gulf and the U.S.A.C. The later delivery offered by stemming from North West Europe or the Med was not preferred, although that could change. Estimates are that these tanks shall be out for up to two weeks, which in conjunction with Hurricane Isaac shutting in the Mississippi River, shows real potential for trans-Atlantic rates to jump 20 points in a fixing window next week of 2nd decade September barrels. Certainly, Caribs-US Gulf rates are very firm on the back of this, while the present overhang of prompt MR tonnage from the UKC has dampened TC2 back to 37 at 112.5 levels -for now.
At the time of writing, we understand PDVSA has reached out directly to at least one major North West European refiner, and one major trader, for support in covering this product supply. The political situation would suggest to non-US companies perhaps being the initial approach….
The back haul market from US to Europe is consequently very tight for available vessels. US Gulf export barrels however are more likely to head south of course, rather than trans-Atlantic.
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