Double blow for Middle East trades
Tonnage oversupply as newbuildings arrive plus inquiry drought put squeeze on owners.
OWNERS of long range one product tankers trading out of the Middle East face dire spot trading conditions over the next month as an influx of newbuildings and lack of enquiry from charterers hit the market.
The oversupply of LR1 tonnage (60,000 dwt-80,000 dwt) in the market, combined with a considerable drop in naphtha exports from the Middle East, has left LR1 owners with the headache of having to operate their vessels on the breadline.
They are putting up a fight and resisting charterers" attempts to push rates further down, but any thoughts of trying to increase rates is being snuffed out by the bulging tonnage list for March.
?The last couple of weeks have been very quiet, which has not helped, and obviously tonnage has started to pile up. We are not expecting things to change in the next two weeks, because the tonnage list looks too prolific to expect anything better,? a London-based broker said.
Spot rates on the Baltic Exchange TC5 route ? shipping 55,000 tonnes of Saudi Arabian naphtha to Japan ? hit a three-month low yesterday at W124, or $5,000 per day, putting them well below owners" operating expenditure levels, estimated to be $8,600 per day.
The TC5 rate tumbled during the first half of February from $13,000 per day to around $6,000, and had been bouncing around these levels since the start of last week.
The London-based broker said rates had bottomed out over the past week because owners had refused to accept rates any lower, but charterers still had the upper hand.
ICAP Shipping said the TC5 market was ?as quiet as Charlie Chaplin in The Gold Rush? to describe how few fixtures there had been.
Brokers said there were 65 LR1s that would be available to load Middle East oil products to the end of next month, out of a global fleet of 259.
This included 34 LR1s able to ballast back from Asian terminals and another 31 west of Suez, but there may not be enough incentive to lure these ships through the Suez Canal.
Spot rates for the larger long range two tankers (80,000 dwt-120,000 dwt), taking 75,000 tonnes of Middle East products to Japan, were held at around $11,500 per day through this week, around $3,000 above the daily operating cost levels estimated to be $8,375.
Owners had seen rates plunge from highs of around $20,000 per day at the end of January because of the lack of interest from charterers.
Brokers do not expect any improvement in LR2 rates through March because the number of available tankers continues to climb.
?With the newbuilds coming into the market and some ships being redelivered [from floating storage charters], it is adding to the available stock. It would appear that even the most conservative estimates would allow that we are overtonnaged for the coming month,? said another London-based broker.
He estimated there were 46 LR2s, out of a worldwide fleet of 206, available to load Middle East oil products to the end of next month. Of these, 31 could ballast back from eastern ports.
?We may start to see a little bit more naphtha being taken to Japan, but it is spread across the sizes ? LR1, LR2s. It will take quite an influx of cargoes to really pick everyone up,? the London-based broker said.
LR1 and LR2 tankers compete with medium range tankers for Middle East to Asia routes, and there are plenty of these around to take up some of the slack.
Rates for MRs taking 35,000 tonnes of Middle East naphtha to Japan were around W160, according to Fearnleys, down from a high this year of W210. MR owners could get a rate of W220, equivalent to $11,000 per day, to take Middle East oil products to East Africa. The rate includes additional payments to cover the risk of sailing through the Gulf of Aden, or extra time to avoid the area.
An example of this was Shell fixing the 2009-built, 46,556 dwt Gulf Muttrah at a rate of W220 to ship a Middle East cargo to East Africa, loading on March 1.