In Hellenic Shipping News 24/03/2015
The constantly shifting trading patterns of the product tanker trades seems to be favorable for segments of the market like the Medium-Range tankers (MR). But is it like that in the end? According to the latest weekly report from shipbroker Charles R. Weber, since the fourth quarter of 2014, “CPP trading patterns observed in the Atlantic basin have diversified as the geographic distribution of MR loading and discharging locations has widened. This has lent substantial support to MR earnings by expanding ballast time and reducing the time MRs spend on position lists in key markets. UKC – European refineries made a strong return from Q4 seasonal maintenance amid a fresh improvement of margins which was supported by rapidly declining oil prices”.
CR Weber added that “though export volumes were below year?earlier levels by Q1, slower product imports from the Baltic saw more of that market’s exports head for the US while more European products either remained remaining within the region or was exported to alternative locations. Key among these are voyages to West and South Africa, for which YTD spot market cargoes have risen by nearly 52%, year-on-year. UKC-USAC/ECC voyages are off by 47% on the same basis. This development has meant a greater number of voyages with equal laden and ballast legs and fewer triangulated trading patterns – as well as stronger competition between the UKC and Baltic markets. USG – Total spot MR cargoes from the USG have risen by 18% YTD, year-on-year, supported in large part by modest recent PADD 3 (USG) refining capacity gains and high utilization rates. The destination profile of these cargoes shows that more bound for points in Latin America and the Caribbean and fewer to points in Europe. Though the larger share of short-haul voyages would normally represent a headwind for rate development, downside has been countered by the more active market itself and the decline in triangulated trades, which has brought fewer units freeing on the USAC to the USG”.
According to the shipbroker, “demand strength in the UKC and Baltic markets has coincided with a 110% rise in ECC-USAC fixtures, offering USAC positions sufficient alternative options to forgo ballasts to the USG. As a result, a weekly tallying of two?week forward USG MR availability shows a decline of 12% during the YTD when compared with 2014. Reduced competition from LR1s – The presence of LR1 units offering strongly discounted $/mt freight rates relative to MRs in the Atlantic basin has declined markedly since substantial exports from the new Jubail refinery in the Middle East commenced around mid-2014 and increased the opportunity cost for LR1s to remain away from the Middle East. Substantial trades for LR1s in the USG market never materialized due to infrastructure constraints though charterers seeking to utilize their lower freight rates frequently attempted to utilize the class. Ultimately, 49% of all LR1 fixtures in the USG failed during 1Q14 – but the impact on MR rate development remained negative as owners were continually forced to compete with the larger class”, it concluded.
Meanwhile, in the crude tanker market this week, in the VLCC segment, “a modest slowing of activity in the Middle East market kept rate sentiment marginally on the negative side while further demand gains in the West Africa market drew on excess Middle East positions and limited the extent of rate downside in both markets. A total of 24 Middle East fixtures were reported, marking a 17% w/w decline. The West Africa fixture tally rose by 33% to eight fixtures – the most in 10 weeks. On a four?week moving average basis, West Africa fixtures stand at a YTD high; stronger Asian purchases of the early April program there have boosted demand for VLCCs in recent weeks. This activity has effectively offset the impact of a markedly slower Middle East program given that both markets draw on ballasters from the East. The March Middle East program appears to have concluded with 121 cargoes; this implies a spot market?serviced export rate of 7.81 Mb/d, off 550,000 b/d from February. Despite reports suggesting a slowing of China’s crude imports as the country concludes a round of SPR building and ahead of April refinery turnarounds, a four? week moving average of combined VLCC and Suezmax China-bound spot fixtures shows a YTD high of 3.9 Mb/d, which compares with a 2014 average of 3.7 Mb/d. With unknown volumes of China’s crude imports effected via the Singapore storage and transshipment hub complicating data analysis, its too soon to tell if Chinese imports have in fact fallen, though refinery turnarounds should imply a forthcoming lull”, said CR Weber.
It added that “helping to offset any imminent corresponding impact on VLCC demand are plans by India to move forward on their own SPR building. Plans call for three SPR sites to be filled in stages with the first, at Vizag, having a capacity of 9.8 Mbbls. Indian purchases within the first half of the April West Africa program show a doubling of normal levels and while some of these purchases have already been covered by recent VLCC fixtures, none are believed to be bound for the Vizag SPR site. Accordingly, further fixture activity should continue to support West Africa draws from Middle East positions. With the March Middle East program concluding with 121 cargoes, we note that the program has proven more active than previously expected while stronger than expected demand in the West Africa market has further reduced March positions. The month is on course to conclude with a surplus of just 5 units as a result – which is the fewest since December. Combined with potential for demand in the West Africa market during the upcoming week to remain strong relative to recent monthly cyclicality and an expected concerted push by charterers into the April Middle East program, there are reasons to believe rates are poised to pare this week’s losses and command fresh gains”, the shipbroker concluded.
