Friday, February 27, 2015

Markets - China syndrome

For a long time, China has harboured ambitions to move 85% of its crude imports on Chinese controlled ships, which could have resulted in orders for up to 80 VLCCs.
Fortunately for international shipowners, this has not yet been the case as the economic realities of tanker earnings have discouraged investment and Chinese charterers were not prepared to pay in excess of market levels to support such a programme, Gibson said in a report.

Currently the number of VLCCs on order from Chinese controlled companies stands at around 30, with deliveries spread between now and 2017 at around 10 vessels per annum.

These vessels were ordered by relatively few players, such as Associated Maritime, China Shipping, Cosco Dalian, Shandong Landbridge and Grand China.

However, the forthcoming number of deliveries is well above those delivered recently, as just five were delivered in 2013 and eight in 2014 with Brightoil Petroleum and Petrochina among the recipients, in addition to those already mentioned above.

Due to financial pressures, 2014 saw the amalgamation of the Nanjing Tankers and Associated Maritime Co’s fleets under the umbrella of China Merchants creating a large fleet of some 42 VLCCs (once all their 14 newbuildings are delivered) and seven Aframaxes.

Interestingly in the VLCC period fixing frenzy of January 2015, the new entity was reported to have committed three VLCCs out on timecharter for two years to non-Chinese interests and has also chartered out three VLCCs to Trafigura for 12 months trading.

Cosco has also fixed a VLCC to BP for 12 months, Gibson said.

There seems to be a gradual relaxation of state control in some areas, which perhaps explains the Chinese controlled VLCCs being fixed in the international market. It appears that there is a desire to expand their trading partners rather than relying exclusively on Chinese charterers.

This is also reflected in the refining sectors with licences being granted to independent refiners allowing for the import of crude oil. For example, ChemChina was granted a licence to import 200,000 barrels per day.

Politically, the new Chinese premier has made it clear that he supports private commercial initiatives. There is also press speculation that that a merger maybe on the cards between CNOOC and Sinochem, and CNPC and Sinopec.

While it is interesting to see some limited diversification of the Chinese shipping business model, there is no question that crude imports into the country will continue to increase, despite the slowing growth in domestic economic expansion.

An expanding strategic petroleum reserve, more crude heading into commercial inventories and rising refining capacity will significantly lift crude imports, at least in the near term, Gibson concluded.

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