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Product tanker tonnage availability sinks rates

Monday, 13 February 2012 | 00:00
Product tankers haven't managed to escape the tonnage oversupply "plague" which has struck nearly all ship types across most shipping markets, from crude tankers, to dry bulk carriers and container ships. In its latest report, London-based shipbroker Gibson notes that "the product tanker market in the East has been severely depressed over the past few months. Time charter equivalent earnings (tce) for LR2s trading on the benchmark route from the Middle East Gulf to Japan (TC1) have averaged only $6,000/day (on a round voyage basis at design speed) since November. Tce returns dropped to even lower levels over the past couple of weeks, to around $2,000-3,000/day at design speed. The conditions for smaller product carriers in the East have been similar, with LR1 and MR tce earnings also sinking well below fixed operating costs in recent months. This weakness in the region across all size groups has been primarily due to an abundance of available spot tonnage, with slow steaming becoming a common feature of the market" says Gibson.
It also mentioned that "since 2005 the product tanker fleet has increased by 1,005 vessels (+65%). This is equivalent to close to an 8% p.a. increase. However, the pace of growth has slowed over the past twelve months and as a result, the total gain in supply was only 3.5% last year. In 2012 the expectations are for an even smaller increase in fleet numbers, not least due to anticipated delays and cancellations as well as strong interest in scrapping amid weak returns at present. The biggest gain is likely to be in the LR2 fleet, with net increase of 6% this year. Importantly, LR1 supply is forecast to rise by only 2% and MRs by just 1.5%. This will lead to an overall growth of only 2%. Beyond 2012, even slower expansion is projected in the product tanker fleet.
Thus, the current market is still feeling the effects of rapid fleet expansion over the past few years, but the more limited growth in supply over the next few years will alleviate the oversupply of product tankers. At the same time, on the demand side the prospects are for robust growth. More than 2.8 million b/d of new refining capacity in the Middle East and India is expected to come on stream by 2016 and this will offer strong support both to long haul and short haul products trade out of the region. Combined, these improvements in the supply and demand conditions could provide a solid base for a substantial gain in product tanker rates in the East in the medium term, but for now product tankers will have a few more “rough waves” ahead of them" concluded Gibson.
Meanwhile, in the crude tanker markets this week and more specifically in the suffering VLCC world, shipbroker Barry Rogliano Salles (BRS) noted that "we started the week with the official launching of the new VLCC pool: NOVA. We wish them luck and success even if we have to admit that for the time being, they could do not do much against the continuous pressure on the rates. Bunkers are moving up on one side and market levels down on the other, resulting in a negative impact on the TCE earnings of the ships. Charterers have managed to break the psychological level of WS50 basis 265,000t MEG/EAST, and on newbuilding ships they even managed to do less than WS45.The TCE rates are now well below the OPEX cost again, and we cannot see yet any light at the end of this long tunnel. January VLCC liftings in total this year were just 2% above last year figures, not sufficient to absorb the 6% net increase of the fleet in the same period" said BRS.
It went on to mention that "the West Africa Suezmax market didn’t firm up as much as expected. Even though the last ten days of February have been busy, a very quiet Baltic Sea/Med market increased the number of available ships to compete for West Africa cargoes. Basis 13kts speed, current returns lie around the USD19,000 per day at a rate of about WS80. As mentioned the European market was pretty dead this week and delays in the Turkish straits remain low. The only positive signs have been an increased activity from the Continent and Med to the East. Voyages from the Black Sea at WS80 earn about USD18,000 per day".
Concluding its report, the Paris-based shipbroker noted "a bit more activity has been observed in the Baltic Sea / Med Aframax market, but rates have remained mostly unchanged or slightly below last week’s levels. In the cross-Med market, the majority basis 80,000t was fixed at WS80 (i.e. about USD7,000 per day) and in the Black Sea market (basis 80,000t) around the same or a touch higher at WS82.5. With adverse weather conditions and likely bigger volumes, rates are unlikely to go down but possibly just remain at the same level. The North markets were rather quiet this week. With limited activity on both cross - North Sea and ex Baltic voyages, owners didn't manage to resist the soft trend. 80,000t cross-Cont currently pays WS87.5, and 100,000t ex Baltic about WS80" said BRS in its weekly report.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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