Medium Range product tankers look a good bet in today's market
Monday, 04 June 2012 | 00:00
Investment optimism regarding the prospects of the MR product tanker segment has risen lately and at first glance appears to be based on sound fundamentals. As shipbroker Gibson noted in its latest weekly report, "until recently there had been very little new investment in MRs for 3½ years and so the current order book is relatively small. This means that there will be no major expansion in the fleet for at least the next 2 years.
Against this backdrop, demand for these vessels is projected to rise.
Firstly, there is more product trade in the Atlantic Basin and this is
forecast to rise further. The main reason behind this is the major
increases in product exports out of the US Gulf. Five years ago US
exports of distillates and gasoline averaged 0.4 million b/d; so far
this year more than 1.5 million b/d has been exported. This more than
compensates for the decline in transatlantic gasoline trade from Europe
to the USAC and gives the market another major loading region, which can
only help owners" said Gibson.
Looking ahead, the London-based shipbroker mentioned that "the likely
closure of refining capacity on the USAC would lead to more product
trade in to this region. In addition, the current reversal of the Seaway
crude pipeline to take ‘low priced’ crude oil from the bottleneck at
Cushing, Oklahoma down to the US Gulf will improve the refinery margins
on the Gulf coast. The net result will be even more product exports out
of the US Gulf, which will be dominated by MR activity.
Further down the line, the start-up of new export refining capacity in
the Middle East from next year onwards will lead to a major rebound in
product trade from the region, supporting LR2s, LR1s and the MR sector.
Hence, demand for MRs is set to rise and supply remain constrained; good
fundamentals for investment. The challenge for the industry is knowing
when to stop. Back at the start of 2010 the conditions looked good for
Suezmax investment; the problem was that 74 orders followed! Now it
looks good for MRs, but when is the right time to stop? From our
analysis there is room for more MR orders over the next 12-18 months.
Therefore, there are still good opportunities here, but take it too far
and it will ruin it for everyone. Know the limits of the market and “if
you miss this boat, there will be another one along soon after”; LR2
investment perhaps?" wondered Gibson.
Meanwhile, in the clean tanker markets this week, according to Gibson in
the East there was "a week of contrasts in the LR market. "LR1s saw
declining fortunes and rates slipping, whilst LR2s have seen a shortage
of tonnage and rates climbing. 55,000 mt AG/Japan is down to WS 102.5
and 65,000 mt Jet AG/U.K. Continent is at USD 1.775 m. LR2s have seen
rates rising some WS 10 points, with 75,000 Naphtha AG/Japan at WS 92.5
and 90,000 Jet AG/U.K. Continent up over USD 2.30 m. However, the LR2
upturn looks short-lived.
The MRs have had a static week, with rates continuing to bottom feed.
TC12 has fallen to WS 120 and it looks like less is on the cards. East
Africa is fixing at WS 165-170 basis 35,000 mt, but the majority of East
African bound cargoes continue to be shipped on LRs. AG to U.K.
Continent is fixing at USD 1.275 m. There is general feeling that rates
have hit the bottom, but with a dearth of enquiry, any positive change
in the short term is unlikely.
Against expectations, the Korean MR backhaul market has levelled out
this week. This is due in part to a tighter position list and also due
to a few late running ships. Generally the cost for an MR for
Korea/Singapore is around USD 400k level; but for cargoes where vessels
have been running late, Owners are achieving USD 450k levels.
Conversely, the LR1s and LR2s have been less fortuitous, employment for
these sizes has been limited and most of them have had to face the long
ballast back to the AG for their next cargo. The Singapore/Australia
voyages have been practically non-existent this week and it would be
fair to assume that freight rates have not moved much off 30 mt x WS
170" said Gibson.
In the Mediterranean, Gibson noted a move away from status quo at last,
"as rates saw a temporary spike. Available tonnage was in shorter
supply, particularly in the East Mediterranean and, with a number of
Black Sea cargoes quoted, rates spiked to 30 mt at WS 157.5 levels
mid-week, but now considered 30 mt at WS 150 levels. Cross-Mediterranean
rates moved upwards in trend to 30 mt at WS 145-150, with liftings date
sensitive; but with the latter half of the week quiet, the market is
now 30 mt at WS 142.5-145. With Posidonia being next week’s main event,
activity is expected to be slow. Market rates are anticipated to soften,
back towards the dreary 30 mt at WS 140 levels for both the
Mediterranean and Black Sea exports, as tonnage supply expands. Pretty
uninteresting for the MRs, which were not helped by a softening TC2
market. Mediterranean transatlantic is considered in line, 37 mt at WS
135-137.5 levels. There was some interest for moving UMS East bound,
with Owners’ ideas arranged around the USD 775-825k / 875-925k levels
for Red Sea/AG discharge on an MR" Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide