News and views from the VLCC tanker market for week ending Oct 11By james tweed • Oct 11th, 2013 • Category: Tankers
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There was an interesting article this week entitled, “Tanker rates rally as owners demolish most in a decade”, remarking that, “the biggest demolition program in a decade trims down a glut of capacity”. Wonderful news, we are informed that VLCC earnings are set to rise because of this and promised that daily earnings will average $22,000/day for 2014. This would be a dramatic improvement on the average of 2013, which stands at approximately $7,500/day, well below operating costs. The author of the report is combining views from other sources and much in the article is correct but nowhere does it mention that this year 27 new VLCCs have been delivered and another six will be delivered before the end of the year, hence the fleet will actually have grown by 10 VLCC’s in total. There are another 30 VLCC’s to be delivered in 2014, so if scrapping levels remain at 23 vessels for next year, there will be net growth of seven vessels next year as well. Some owners have gambled on buying older, 12 to 13 year old ships coming up to the end of their commercial life, in the hope they can catch a couple of spikes prior to scrapping, but these gambles have not paid off and a softening scrap price means further loses on those particular vessels.
Meanwhile the Arabian Gulf has again been busy with levels of activity being enough to maintain freight levels with possible opportunities to push freights higher at the start of the week when there were multiple charterers chasing similar vessels, however, they quickly sorted themselves out and generally covered at 270 at 36.5 for AG/East. As the week progressed and owners gradually managed to squeeze a point or more from charterers, we are assessing AG/East at 270 at 37.5. Those charterers requiring multi-option cargoes have had to pay a premium of around 38 east, and to go West, 24 via the Suez and 26 via the Cape of Good Hope. On the whole the market has remained steady as the fixing dates have been over the final decade for AG/East and end/early for western and multi-option cargoes.
Having finished off a busy final decade in October, Chinese charterers stepped forward and covered the first decade of November, skilfully picking of tonnage with minimal impact on the market and despite the levels of activity, rates only advanced from 260 at 39 to 40 for the West Africa/China run. Other charterers following in their wake might not find fixing as easy, as owners realise how much the tonnage list has tightened and demand more freight.
From the Indian charterers it was IOC who quoted their first requirement out of West Africa for the month of November off 4-5 dates and received six offers. Charterers covered their requirement on an Atlantic ship at $3.26m, however had to release the vessel because of a free-board issue at one of the load ports. Charterers paid $3.7m as a replacement to a ship coming out of the Continent for the same cargo. IOC then came to the market for a similar cargo, however discharging at west coast India which usually attracts a $300,000 discount to cargoes that discharge at east coast India and fixed the business at $3.55m, again reflecting the firming sentiment seen in the first decade of November from the region. We expect an increased volume from Indian charterers out of West Africa in November and we are assessing West Africa/west coast India at $3.5m and West Africa/east coast India at $3.8m. So far, October has produced 22 VLCC fixtures from West Africa and 64 Suezmax, making a total of 108m barrels lifted for the month and so far for October we have counted ten fixtures for the first decade.
The Caribbean has been subdued since the October stems were mostly covered the week before and only Ecopetrol fixed off 25-30 for Covenas to Singapore.
The 30-day availability shows 53 VLCCs arriving at Fujairah of which 9 are above 15 years old. This compares to 53 last week. The total number of fixtures reported for October is 115, which has been light on AG/East so far, so we could have another ten cargoes to cover for the month for that voyage. Meanwhile we would expect a healthy hangover of about 20 vessels into November offering a warm comfort pillow for charterers.
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