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Aframax size dirty tankers clean up to step up earnings: sources

Aframaxes and double-coated dirty tankers are cleaning up to store and move refined products, in order to step up their earnings and take advantage of the sharp rise in freight rates, market participants said Wednesday.

At least 20 such tankers including those controlled by Clearlake, Cardiff and ones in the Heidmar pool have either cleaned up or are in the process of doing so over the next few weeks, they said.

Other companies which are exploring the possibility of a switchover include Teekay Tankers, they added.

Sources in these companies couldn’t be immediately reached for comment but those tracking the development said it is significant because it comes at a time when charterers are struggling to get LR2s for loading distillate and naphtha cargoes for West and eastbound deliveries, respectively.

More than 170 clean tankers globally, most of them LR2s but also LR1s and MRs, are either doing floating storage or are stuck in long queues at major ports, waiting for discharge orders amid a sharp fall in consumption because of the coronavirus linked lockdowns.

This has pushed up the clean tanker freight rates to an all time high and dirty ships are keen to get a piece of the pie.

LR2s on long haul routes such as the Middle East-North Asia ones are enjoying a daily earning of around $180,000-$200,000, while the corresponding number for Aframaxes is around $60,000.

The additional supply by way of cleaned up Aframaxes is a welcome addition to the LR2 supply but they are unlikely to bring down clean rates significantly in the near term, said a chartering executive with a global commodities trading company.

In the latest LR2 fixtures, the Clearocean Apollon was placed on subjects by Mabanaft at $7.5 million for May 18 gasoil loading on the Sikka-UKC route, sources said. In another fixture, the Nolde was taken by Total at $6.3 million for May 17 gasoil loading on the Persian Gulf-UKC route, they said.

These fixtures are much below the record highs of $8.6 million at which ATC had briefly taken an LR2 before releasing it but still much higher than the previous record of $5.5 million seen in 2008.

“These ships have a dirty cargo history and therefore not every charterer can use them. Hence they are slightly cheaper,” another chartering source said.

TIGHT LR2 SUPPLY AND NAPHTHA

LR2s are a common means of transportation for naphtha into North Asia but being a very sensitive commodity with stringent quality specifications, importers insist that the tankers on which it is delivered, should not have carried dirty cargoes in the previous three voyages.

This automatically excludes the new clean tanker converts from moving naphtha but their use for transporting distillate cargoes can ease up some of the LR2s already in the global fleet, for the Middle East-North Asia voyages.

“The question of using recently switched over tankers to move naphtha does not arise,” one of the charterers said.

However, others point out that the congestion and long queues of gasoil and jet fuel cargoes laden on LR2s in Europe means that these ships are unable to return for potentially picking up a naphtha cargo and therefore the converts at least add up to the supply, regardless of the cargo they move.

As of now, the LR owners are putting up a brave front to this migration in the global fleet.

Initially there was a fear among clean tankers owners that the switchover of Aframaxes will have a negative impact on their earnings, one among them said.

However, some of the trading companies with unsold gasoil may not want to restrict themselves as many buyers will not prefer to take receivership of cargoes that have been moved in tankers which carried crude or fuel oil in their previous voyage, he said.

COSTS AND LOGISTICS

The clean tankers market is firmer than the Aframaxes, so it seems more ships will crossover, said a source with one of the owners.

However it takes time, hence the supply of clean trading LR2s won’t increase immediately, the source said.

Another source with a clean tankers’ owner estimates that the costs entailing the switch are close to $500,000-$600,000, including the earnings which the ship has to forego because it is idle during the four to five days that are spent in cleaning.

Since most of these tankers are already double-coated, so cleaning process is not very long and if done in East Asia, it may not cost more than $200,000-$250,000 but based on current rates, the ship will lose a similar amount of notional earnings during the process, a tankers’ broker added.
Source: Platts

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