How was this week in the tanker markets? Listen in to find out… May 3By james tweed • May 3rd, 2013 • Category: Tankers
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Thanks for downloading the Tanker Market report podcast from Coracle and Braemar Seascope for May 3rd 2013. This report looks at the VLCC, Suezmax, Aframax and clean products markets.
Starting with the VLCC sector and despite the significantly increased activity from charterers and a bottleneck of cargoes for AG loading VLCCs, very little progress was actually made this week, and certainly no money. Some will congratulate owners for moving the AG/East market up from last week’s levels of 32 to 35, but realistically we are nowhere near where the trading levels need to be. In reality, we have a ‘Zombie’ VLCC fleet forced to continue trading at less than operating costs by banks jacked up on cheap government credit, unwilling to realise the enormous losses they have incurred on their assets. In their defence, writing off 50% of a $130m VLCC investment in five years is a difficult task for even the most brazen bankers and shipowners – especially when the option exists to “kick the can down the road”. As the VLCC fleet stands today, we estimate about 30% oversupply, with a balanced market only returning when we reach approximately 10%. This summer will once again be a test of exactly how much pain those VLCC owners and their financiers can bear. To scrap 20% of the current fleet of 614 VLCCs is no small task and will no doubt affect the scrap steel price significantly. So perhaps in real terms it would be better to bite the bullet and move on rather than the slow bleed to death as good money is thrown after bad.
For the chartering market the week started strongly with Far Eastern refiners showing a great deal of cargoes in the second decade of May loading window, and over the last few days there have been 23 ships fixed, of which only 3 went to the USA. Over this period, we have seen as many as 8 cargoes working in the market and more off market at any one time: surely a recipe for a significant improvement in freight rates. Alas, the fleet formed an orderly queue, only a few daring to ask slightly more than last done and were picked off like ducks in a row with a mighty 270 at 33.75 being achieved after so much activity. This is an example of a week where charterers came to the market in volume, hoping to fix before the Far Eastern holiday, and owners were unable to capitalise. We could be in for a long summer of 270 at 30 AG/East. The westbound cargoes have been steady at 280 at 18 via the Cape and 16 via the Suez Canal. This covers the bunkers and stores costs to position a ship in the Caribbean for an export cargo.
The West African market kicked into gear with Chinese charterers increasing their volume of imports from the area mostly using ballasters from the eastern hemisphere on a round trip basis and freight rates have settled to a steady 260 at 34 for W Africa/China. As the volume of cargoes increased, so did rates – up to 36. There have been a few ships programmed to load their own cargoes for W Africa/USG and rates also remain steady at the 40 level, but this can increase steeply for early loading dates as some charterers have recently found.
For the Suezmaxes it was a quiet finish to last week in the West African Suezmax market. With rates following a downward trend last week there was no great expectation that we would see anything different this time around. We did see a bit of resistance from owners which helped stop the rot this week. It has been a good week in terms of numbers of fixtures, but unfortunately the weight of tonnage on the list meant that the inevitable happened and we saw a (slight) drop in rates. Upwards of 13 fixtures from West Africa were reported this week and a good amount of them were discharging in South Africa. Rates for this run started and finished the week at 65, a 10 point premium over USG. Towards the end of the week, the dates moved into the last decade and this of course brought in a larger availability of tonnage. Charterers pushed for 52.5 for the USG but the closest they achieved was 53.75. We haven’t seen many fixtures below these levels in 2013, so it is a relatively safe bet to suggest that 50 to 52.5 will be the bottom of the market. The tonnage list suggests that this will continue to be the story for the foreseeable future.
The Med/Black Sea market was very quiet this week for the Suezmaxes. The delays through the Turkish Straits are now at negligible levels and so are having a minimal effect on rates. Charterers covered the first decade from Novorossiysk last week, so this week saw the start and end of the middle decade. Unfortunately for owners, there were only 2 cargoes to cover in the middle decade. This led to a slight drop in rates. The cross-Med cargoes that came into the market fixed at 60, with a small premium for Algeria loads. With the impending holiday and Greek Easter, the remainder of this week will probably be quiet and this may continue into next week. With Black Sea fixed up to the 22nd, charterers are not in a hurry to cover their enquiry and will use the lacklustre market to try and push rates lower.
For the Aframaxes this week has seen crude stems from Primorsk and Ust Luga covered in the 10-15 May window. Freight rates have remained low at 100 at 57.5. There are expected to be around 70 cargoes from Primorsk and Ust Luga this month, which is 10 fewer than last month when we saw the spike in rates, albeit when there where ice restrictions. However, compared to this time last year, there were on average between 60 to 65 cargoes. Cross-North Sea has continued to remain flat at 80 at 80, which shows approximately $2,000/day earnings for owners.
For the clean markets and this week has seen a lot more activity on both Eastern LR1s and LR2s but rates haven’t shifted off recent levels and seem firmly stuck at the bottom. There is still confidence that rates will recover into late May and early June as the lists are heavily populated with western ballast positions and the number of ships being fixed from the Far East into the Red Sea leaves many positions uncertain.
In the West the US product inventory levels reached all-time highs, and even with a minor incident at the SHELL Rotterdam/Pernice refinery later in the week, the overall fundamentals for trans-Atlantic remain weak to bearish. Consequently, TC2 earnings dropped closer to $13,000/day, or 37 at 145, with downward pressure. Several large cubic MR’s were taken for gasoil stems UKC to Argentina, but not enough to have any impact on the first half May position list.
Thanks for listening