TANKERS: Asian Aframax freight rates surge to w90 amid switch to clean products
Aframax freight rates on key ex-Asia routes have reached w90 for the first time in 2021 on the back of tight supply as several ships clean up to load refined products, many ballast to the Mediterranean and cracking margins improve for refining light crudes, market participants said March 4.
The benchmark Persian-Gulf-East route was assessed at w90 March 3, up 24% week on week, S&P Global Platts data showed.
Rates on ex-Asia routes had hovered below w70 earlier in the year, dragging down the earnings of owners to negative, and further gains are potentially in the offing. If OPEC+ opts to increase crude output at its meeting later in the day, the Aframax freight market could receive a further boost, one broker said.
When owners were losing money and losses were mounting, close to a dozen Aframaxes switched to the clean segment, reducing supply. Several companies including Maersk, Heidmar, Shell and Torm converted their double-coated tankers to clean product haulage, market sources said. Maersk has cleaned up almost all its Aframaxes, with only a few remaining in the Singapore region and less than a handful in the Persian Gulf, brokers said.
Aframaxes in Asia have also gained spillover support from a strong Mediterranean market since mid-February after severe weather conditions across that region boosted owner sentiment.
Aframax freight rates on the Mediterranean-UKC route surged from w67.5 on Feb. 15 to w127.5 on Feb 23 before easing to w107.5 on March 2, but remain significantly higher than in mid-February, Platts data showed.
Several owners with Aframaxes in the Middle East have ballasted them to the Mediterranean to take advantage of the firm rates in that region, which has tightened supply in the Persian Gulf and Red Sea, a broker said.
Charterers are finding it hard to find suitable ships for loading from the Persian Gulf and Bashayer and there has been a buildup of outstanding cargoes over the past few trading days amid the tight supply of Aframaxes.
“Paying up from Red Sea is very much possible,” a chartering source said.
Hardly any Aframax ship is willing to ballast to the Middle East from East Asia because of the uptick in demand to load fuel oil and regional sweet crude demand in Vietnam, Malaysia and Indonesia and condensates in Australia, sources said.
Several cross-harbor fixtures in North Asia absorbed the relatively older ships during the Lunar New Year and rest were being deployed in Southeast Asia, an Aframax broker said, attributing this to tighter supply and higher rates.
Another broker said owners were now holding back supply in the first week of March.
Demand for condensate loading in Australia has been very strong in recent days due to higher cracking margins for naphtha and gasoline, which has increased the appetite for ultra-light crude, sources said.
More than half a dozen charterers such as Hengyi, Trafigura, Shell, ExxonMobil, Total, Vitol and Mitsui are seeking tonnage to load Australian condensate, according to the list of cargoes compiled by brokers.
The switch of double-coated tankers to clean “will be negative for the LR2s,” another chartering source said. Ships that were earlier carrying dirty cargoes are ready to offer discounts to get clean products, the source said. Originally clean tankers cannot give such low rates due to weak earnings, he added.
Initially, these ships were picking up condensate cargoes but as their voyage history becomes cleaner, they are expected to increasingly pick up clean cargoes.
“Already the LR2s have awful earnings due to too many ships,” a source with an LR2 owner said. Owners are still running into losses, with no daily earnings on several key LR2 routes and earnings of only a few hundred dollars a day on others.
Few cargoes have been quoted for loading in the March 20-31 window and there was a “massive” overhang of ships, he said.