Suezmax tankers suffering from oversupply issues and changes in trade patterns
Monday, 14 May 2012 | 00:00
Could the Suezmax tanker fleet be the main "guilty" force between the trials and tribulations of the tanker shipping markets? In a relative report, London-based shipbroker says that the Suezmax tanker fleet has risen exponentially during the past few years, witnessing the fastest growth since 2005, between all other individual tanker categories. In fact, "the number of vessels in this size group has increased by 53% over this period,
compared to 34% for VLCCs and 27% for crude Aframaxes. The oversupply of tonnage following this rapid growth in supply is often blamed, and quite rightfully so, for the extreme weakness in tanker returns. Last year Suezmax tce earnings for West Africa - USAC (TD5) averaged just $13,000/day on a round voyage basis at design speed, their lowest level seen since the turn of the century. The situation so far this year has not been much better" said Gibson.
However, as Gibson noted "the excess capacity is not the only culprit. Trade flows are evolving and this can depress tanker demand further (or vice versa). For Suezmaxes, most notable changes have been seen on the trade from West Africa to the US. Historically, this voyage has been the benchmark route but over the past few years there has been a notable decline in crude shipments from Nigeria and Angola to the US. Cumulatively, crude exports from these two countries more than halved from 1.58 million b/d in 2007 to just 0.64 million b/d during the first four months of this year. These changes have primarily been underpinned by weakening US oil demand, rising US crude production and the closure of refining capacity in the US East Coast. In addition, the loss of the Libyan crude production in 2011 also temporarily “pulled” more West African crude to Europe at expense of the transatlantic trade" stated Gibson.
It went on to state that "falling US imports of West African crude mean that the importance of the West Africa – US voyage as a benchmark trade for Suezmaxes is fading away. The number of spot Suezmax fixtures on this route declined by around 20% during the first four months of 2012, versus the same period last year and by a further 20% compared to Jan-Apr 2010. More importantly, this trend is expected to continue, considering that the fundamental factors that are behind the weakness in US crude imports are unlikely to be reversed, not least due to high hopes for a strong growth in US ‘light tight oil’ production. However, there will be other opportunities. More long haul crude trade from West Africa to the East is anticipated, although the emphasis here is likely to be on VLCCs. In the long run, Suezmaxes are also likely to benefit from large scale gains in Brazilian crude output. But for now, the near term prospects remain limited, particularly considering that Suezmaxes still have a fifth of its current fleet size on order" concluded Gibson.
Meanwhile, in the tanker markets this week, the shipbroker noted that in the Middle East markets, "an early attempt by VLCC Owners in the Middle East Gulf to claw back some of the lost ground nearly succeeded, but as activity slowed, rates again slipped to a low of WS 53 to the East and WS 38.5 West, although net returns for those who fill up at the new, lower, bunker price will hold up better than the lower worldscale value would indicate. Suezmaxes had a fairly busy week, but the majority interest remained for short hauls, and it was never enough to force the issue above 130,000 by WS 85 to the East with stiff competition to the west bringing rates to the low WS 40 level. Aframaxes stay bumping along their recent bottom - 80,000 by WS 92.5/95, and there is no sign of any improvement over the coming period" it said.
In the West Africa region, "Suezmaxes saw enough action to take up a lot of the slack, and the improved rate, and sentiment, in the Mediterranean filtered down to allow rates to inflate a little to 130,000 by WS 72.5/75 for both States and European options. There could be further upside, but Charterers won’t give in easily, and a break-out is unlikely. VLCCs are in very short supply upon the general fixing window, but there’s little to be done for inter Atlantic trades, and Eastern demand has moved onto forward dates where ballasters from that area provide good supply for round trips. Rates hover at around 260,000 by WS 60 East, with USD 4.325 million the last done for West Coast India" Gibson mentioned.
In the Mediterranean, it was "a week of 'holding on' for Aframax owners, but eventually their grip weakened to bring rates to 80,000 by WS 85 cross-Mediterranean where they should remain unless, or until, Charterers get too busy in the bargain hunt. Suezmaxes, on the other hand, continued on their mini roll as reasonable enquiry hit against an ongoing tight early position list. Rates moved up to 140,000 by WS 87.5 for Black Sea/Europe movements, but fresh enquiry has dried, and there may well be some discounting until the next tranche of interest develops" Gibson commented.
Finally, "the North Sea Aframax players kept their 'ball' within the midfield at 80,000 by WS 95-ish cross U.K. Continent, and 100,000 by WS 75/77.5 from the Baltic. By the weeks' end, however, there was some advantage in the air for Owners as more plentiful enquiry emerged, and availability stretched. Suezmaxes found little to play with and rates stayed largely theoretical at 135,000 by WS 65/67.5 for States discharge. VLCCs also lacked cargoes, but Owners still asked for close to USD 5 million to Singapore, to keep in line with earning opportunities from other load areas" Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide