A week is a long time in the VLCC market: hear about the brutal change in the marketBy james tweed • Jan 31st, 2014 • Category: Tankers
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British Prime Minister from the 1960’s and 70’s, Harold Wilson, once famously said that a week is a long time in politics. Perhaps it’s even longer in the sometimes brutal AG VLCC market. Just seven days ago VLCC earnings stood at a respectable $55,500 a day. That equivalent voyage now returns $19,400 a day, a 65% reduction. Last week we talked about the strength in the sector and the upcoming Chinese New Year, but this week the owners got spooked and when CPC quoted AG/Taiwan 17-19 February they managed to get 11 offers. Owners looked to book good rates before the expected quieter holiday period and to begin with it looked like rates would be maintained as offers came in 270 at 72.5-75 levels. However, a 1993-built VLCC accepted the first counter at 270 at 57.5. This was quickly followed by Chinese charterers repeating the rate on a modern, fully approved vessel loading 18-20 February. This led to a couple of vessels that had fixed at higher rates being failed and so the rout began. Another Taiwanese based charterer quoted similar dates and received another 10 offers in the worldscale 60’s, but their first counter at 265 at 47.5 was also pounced on by oil company controlled tonnage. Rates for well-approved VLCC’s AG/East now appear to have stabilised at 270 at 44.
It was a similar story for AG/West. Fixtures concluded at the beginning of the week at 280 in the low 40’s on an options cargo for AG/USG-UKC were failed or re-arranged. Other charterers managed to reduce AG/USG to 280 at 33, with worldscale 30 seeming to be the lowest fixture reported on this route. Charterers are saying their next fixing levels are now below 30, but it remains to be seen if this is achievable. With rising bunker prices we think we are a stabilisation point for the market.
West Africa has been subdued following the frenetic fixing of the previous two weeks, as charterers watched the destruction of the AG market and didn’t feel compelled to rush in. We are expecting next done levels to be around 260 at 46, somewhat less than the previous week’s high of 67.5. We do not expect West Africa/West to be traded on VLCCs since the suezmax market has also reset itself down to 130 in the 80’s: charterers will concentrate on those sizes for westbound cargoes.
The 30 day availability index shows 62 VLCCs arriving at Fujairah, of which nine are over 15 years old, compared to 75 last week. With approximately 35 cargoes now covered for 1st decade February and 35 for the second decade we do expect a shorter month than usual to add to owners’ concerns.
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