VLCC rates jump, but can the rise be sustained? Tanker report Sep14By james tweed • Sep 14th, 2012 • Category: Tankers
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Thanks for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for Sept 14th 2012. This report looks at the VLCC, Suezmax, Aframax and clean products markets.
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As the end of September closes in, VLCC charterers with cargoes still uncovered are starting to see the market move away from them. There has been a battle over the ‘right’ ships these last few days as there are only so many that will accept rates in the high 30’s for AG/East. It has been a fairly busy week in terms of trading, even though Singapore has hosted its annual APPEC and October stem dates are yet to be nominated. AG/East is moving up above the 40 mark again, at least in the short term, and with owners now rebuilding their confidence moving into the winter months, there may be higher rates to follow.
AG/West took an eagerly awaited jump, up by several points, as charterers with cape/cape routing were forced to pay a premium for their preferred passage in the aftermath of a few deals done on the time saving Suez/Suez journey that is so favoured by owners these days. With high bunker prices, the additional time spent on the laden passage has become crucial for those looking to optimize by triangulation.
In the Atlantic, ships have cleared out quickly, leaving a few charterers short of tonnage to cover their early October stems. With a seemingly large programme from the Chinese, the outcome has been that West Africa/East rates now also have worldscale 40 knocking on the door. Next week will have to be just as busy for the market to pick up, however, as more vessels’ discharge orders become apparent, we expect position lists to swell once again. West Africa/East cargoes have this week fixed at 39.75 several times and the dates are now moving into mid-October. The Indian charterers remain quiet amidst the firming sentiment.
The 30 day availability index shows 57 VLCCs arriving at Fujairah, of which six are over 15 years old, compared to last week’s total of 49. So far for September, we have now seen 105 VLCC fixtures reported from AG. There are still another 10-15 cargoes to go for the month, and October has only shown 6-7 fixtures. With stems confirmed in the middle of next week, we may see some October activity helping owners to push for 40+ rates.
The freight rate for 280 AG/US Gulf is 28, up 4 points from last week and with bunkers currently at $689/tonne, up $5, owners’ earnings are minus $11,000/day. This compares with 270 AG/S Korea at 40, up a point and making owners $3,000 a day.
Looking to the Suexmax sector and despite one of the busiest weeks in recent times, owners in the West Africa market failed to capitalise. The high levels of activity in the region never translated into higher rates. Part of this has to be put down to a position list which still offers around a dozen vessels able to make September dates, and which sees recent cargoes taking offers from half a dozen owners relatively quickly. However, it is difficult to comprehend how the rate can fall, as it did, by two and half points. Although the majority of prompter vessels are now fixed or on subs, there remains a large population able to make the first decade cargoes still being fixed and therefore a similar report can be expected next week.
Cross-Med activity has also increased over and above the minimal levels being recently fixed. Whilst short voyages such as Arzew to Fos were fixing 62.5, generally cross-Med sat around the 60 level. And whilst the market for trans-Atlantic voyages was initially poor at 47.5, it soon recovered to a healthier 52.5 (a rate mirrored on North Sea/trans-Atlantic as well). As for the Black Sea, the stems look covered for September after a small flurry of fixtures. With the September Novorossiysk programme completed, there is a definite dearth of cargoes at present. However, the amount of fixing this week generally in the West has shortened the list. Moving into autumn, owners will be expecting some delays in the Turkish straits, although we normally start seeing them around November. The thought in itself will help to build a bit of positive sentiment, although at the moment there are enough ships on the list to cover the expected cargoes. With the flat market we have seen for the last 6 weeks, the market may continue in a similar vein for the next couple of weeks, but there is certainly scope for a bit more confidence sneaking into the market.
Now the Aframaxes and charterers continue to pick off ships with good itineraries at 100 at 60 for UK Cont discharge, loading from the Russian ports of Primorsk and Ust-Luga with no struggle whatsoever. Most of those stems have now been covered up until and around the 25th September. The oversupply of tonnage in the Continent area and the continued lack of cross North Sea activity doesn’t bode well, and in spite of Baltic Sea fixing dates now getting quite far forward, there is still prompt tonnage available. The ships that are left behind must either accept a considerable waiting time to get fixed away in crude or play in a less certain and price-sensitive DPP market. Vessel earnings are such that the next done shouldn’t be any less than last, but at the same time, there is no way that it can any be more.
The Mediterranean and Black Sea areas have seen a reasonable amount of activity so far this week, albeit at bargain basement freight rates. Every ship’s position seems to have strong competition and although there is currently reasonable cross-Med crude enquiry, sentiment remains weak. Freight rates are currently 80 at 80 for the Black Sea to Med, and 80 at 75 for cross-Med. There are, of course, always exceptions to this rule, like the relatively expensive disbursements at Ceyhan [pronounced SAY HARN] or conversely the more reasonable ones at Sidi Kerir that can affect an owner’s bare bones voyage calculation. All things considered, though, here is where the market will most probably stay for the time being.
Turning to the clean markets and the Eastern MR market has surprised a few people this week. On Monday, the tonnage list was as long as it has been in a while with 15 ships opening prompt to the 15th September and expectations were very low for the week ahead. True to form, Monday and Tuesday were very quiet, resulting in some very ugly cross-AG rates. Come Wednesday, the market suddenly erupted as multiple cargoes seemed to come into the market at the same time, with long haul enquiries west, east and South Africa direction. Based on some of the laycans, charterers had clearly been sitting on these cargoes over the past ten days or so, which until now had been a good plan, as by doing so they softened the market considerably. This led to sudden demand for prompt ships, many of which had gone on subs for short haul cargoes, admittedly at very low rates, but as a result left only a few vessels (controlled by the same owners) available to work. There is a vessel on subs at $1.49m for AG/UKC off 19-20 September, and another one at US$1.425m. It was almost as if false economy had been created and a couple of vessels cashed in. At the moment, these rates stand alone amongst some very low shorter haul rates. However, it cannot be denied that sentiment is high, even though it does slightly misrepresent what is actually occurring in the AG. When all these cross-AG rates get confirmed, these vessels will replenish the list in time for next Monday’s fixing. For now, though, owners are trying to cash in on the back of a couple of mistimed deals.
It’s been a very mixed week for the LR1s and LR2s in the East. LR1s have certainly not had much to cheer about at all as rates have stayed steady. The LR2s in the meantime saw levels for naphtha runs to Japan soften, admittedly unexpectedly, to 95. In the meantime, a flurry of activity for ULSD and jet to the West has seen rates climb to $2.45m to the UK Cont.
In the West and the Continent market this week has continued to firm, against full-on buying interest for naphtha and other gasoline components from Citgo, Hess, Irving and other major North American refiners and East Coast distributors. After last week’s wrestling match between owners and charterers, rates steadily rose as itinerary-driven deals started paying up, with Statoil midweek peaking at 37 at 127.5 when last done prior to this was 120. The outlook is firm, continued pricing and demand in the States is expected to drive this West MR market forward, but still the T.C.E. returns are barely breaking even. While poor information and misreporting may confuse some owners into thinking otherwise, we feel the volume of deals (also Brazil and West Africa cargoes) shall be there to keep these rates up.
Thanks for listening