Shipbroker Gibson noted that ‘product tankers trading in the Far East are having a better second half of 2017 relative to the first half, and on average, have outperformed the Atlantic markets. Whilst earnings in the West have generally had a difficult second half (despite some firming this week), the Far East market has been the consistent performer, gradually firming into Q3 and only easing marginally into the first half of Q4. Part of the strength has followed typical seasonal trends. However, this year the market received an extra boost from the aftermath of hurricane Harvey, with demand emerging late summer/early autumn to fill shorts on the West Coast of North and South America. Whilst this demand has now faded, the product markets may still be feeling a longer lasting impact in terms of thinner tonnage lists from displaced vessels, stronger refining margins and higher trading demand, particularly from North Asia”.
According to Gibson, “increased activity from China has been a key support factor in recent weeks and looks set to continue to underpin the markets for the balance of the year. Earlier in the month the Chinese government issued an additional 5 million tonnes of product export quota to the state-owned refiners to use by year end. This, coupled with good margins, has encouraged refineries across China to boost runs and push more product into the export market. Whilst the independent refineries have not been granted the same export rights, they have positioned themselves to fill the gap left behind by the state-owned refiners who have less restrictive access to the external markets. All of this points to higher export demand emanating from North Asia for the balance of the year. The country’s ban of >10ppm diesel in ships and tractors has also forced some players clear storage and boost exports of the higher sulphur grade. Elsewhere in the region, strong demand for naphtha from the petrochemical sector is driving trading of the light distillate across the region. Tighter supplies and firmer LPG prices are making naphtha more appealing to petrochemical producers, cracking margins have also been firm of late, even with some recent softening. Whilst this is supporting flows from the Middle East and Europe, further trading opportunities have been created within the region”.
The shipbroker added that “moving into 2018, Chinese product export quotas may need to be raised further. The Chinese government has raised crude import quotas for independent refiners by 55% to 2.85 million b/d. Whilst undoubtedly part of this increase in import quota will supply domestic markets, there is scope for further increases in refined product exports. New refineries coming online will also boost Chinese refining capacity. PetroChina’s Anning refinery (260,000 b/d) in Yunnan is now supplying regional demand, whilst CNOOC’s Huizhou Phase 2 (200,000 b/d) plant is in start-up mode. Aside from these plants, limited regional expansions are scheduled for 2018. However, higher regional refinery runs from recently commissioned and existing plants will continue to support products trade across the region, even if the growth is slower than in recent years”, Gibson concluded.
Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “VLCC Owners had their patience sternly tested as November enquiry became quickly finalised and December programmes were still awaited. Rates edged lower from the top end of the recent range to slide into the high ws 60’s West with levels to the West dipping to sub ws 25. The expectation of busier times to come prevented further damage, but it will need concentrated attention from early next week to recreate momentum and give any chance for the market to rebound. Suezmaxes moved through a welcome active phase with demand to the West particularly apparent.Rates responded accordingly to move into the high ws 40’s West and to ws 87.5 to the East, but that seems to be a high tide mark just for the time being. Aframaxes slid lower, as expected, on thin enquiry and heavier availability. Rates now stand at 80,000mt by ws 115 to Singapore and are likely to move lower over the next fixing phase too”, the shipbroker concluded.