Wednesday, January 20, 2016

VLCC market weakens across the board

File VLCC Tankship DHT Ann: Photo courtesy of DHT

The tanker market hasn’t started off the New Year in the best possible manner as rates have retreated across the board. In its latest weekly report, shipbroker Charles R. Weber said that “the VLCC market was markedly weaker this week with rates in the Middle East and West Africa markets falling sharply with those in the Caribbean market following suit after a lag. Demand in the Middle East market rose modestly, rising to a tally of 25 from last week’s 22 while that in the West Africa market remained uninspiring with just two observed”.

The shipbroker said that “the January Middle East loading program came to an abrupt end with just 114 cargoes (below our expected range of 117‐122), which contributed to the negative pressure. More importantly, demand for February West Africa stems by Asian buyers has remained soft, which was reflected this week in the sustaining of light VLCC chartering activity. The lower West Africa demand reduced the number of units drawn from the Middle East market; this contributed to a wider supply/demand imbalance which was augmented by the appearance of more units on position lists (including a number of previously “hidden” positions) as well as the continued presence of disadvantaged units (recently ex‐dry dock, newbuildings, older units), which proved taxing on owners”.

CR Weber also noted that “with the January program concluded and just two additional January positions likely to be drawn to the West Africa market, the surplus of Middle East positions has driven up to 18 units. This represents a strong increase on the implied surplus as viewed just a week ago and a considerable increase relative to 2015‐end month average of nine surplus units – as well as the most overall since September 2014. The near‐term demand outlook soured after indications as to the Basrah loading program materialized and showed a light first‐decade (despite a stronger overall daily supply rate), which further compounded the impact on rates. As a result of these factors, the market witnessed a 45% w/w contraction of average earnings to ~$57,299/day. Despite the extent thereof, earnings are only a modest 14% below the 2016 average which represents a strong disconnect from the wide supply/demand imbalance. While we believe that February loadings will ultimately lead to a tighter balance and stronger rates by mid‐February, the present balance suggests that further rate losses are likely to materialize in the interim”.

Region-wise, in the Middle East, “assessed rates to the Far East averaged ws68.8 (basis 2016 flat rates), off 44.9 points, w/w, while corresponding TCEs lost 44% to an average of ~$60,742/day. The present assessment of ws57.5 yields ~$48,964/day. Rates to the USG via the Cape lost 18.2 points w/w to an assessed ws48.5. Triangulated Westbound earnings dropped 17% w/w to an average of ~$97,082/day while present assessments yield.

~$84,141/day”, said CR Weber. In the Atlantic Basin, “rates in the West Africa market continued to trail those in the Middle East and the WAFR‐FEAST route lost 24.3 points w/w to an assessed average of ws86. Corresponding TCEs dropped 25% to an average of ~$76,123/day. The present assessment of ws70 yields ~$60,030/day”.

Finally, “the Caribbean market was more active this week; however, with more units appearing on position lists and the earlier demand lull having left more units uncovered rates were under negative pressure which was compounded by some ballast units from Asia considering voyages from the Caribbean instead of the Middle East. This saw rates on the CBS‐SPORE route drop $1.25m to $6.50m lump sum”. said CR Weber.

According to the shipbroker “the pace of demand in the West Africa Suezmax market was largely unchanged from last week with the fixture tally rising by one to fourteen. While the final decade of the January program has been more active than the prior two (26 final decade vs. 16 and 18, respectively, for the first and second decades), the Suezmax‐oriented cargo volume for the month stands 14% below the 4Q15 average as the region’s spot market serviced exports appear to have declined by around 650,000 b/d. The slower Suezmax demand for January loadings has left a greater number of units available as charterers progress into February dates which – together with softer rates in the Black Sea and Caribbean markets – exerted negative pressure on rates this week. The WAFR‐UKC route shed 12.5 points to conclude at ws97.5 and given the growing supply/demand imbalance is likely to observe markedly lower rates from early during the upcoming week as this becomes more apparent to participants”.

Meanwhile, “rates in the Caribbean Aframax market commenced the week stronger on last week’s elevated demand and a measure of date‐sensitivity for early cargoes worked this week, which boosted rates for some cargoes with carryover effects for participants working normal dates. However, as the week progressed, demand levels moderated – this week’s regional fixture tally of sixteen represented a 35% w/w decline – and some earlier fixtures failed leading to a small number of prompt positions and an easing of rates from the week’s earlier highs. Having touched as high as ws135, the CBS‐USG route concluded at ws130, representing a weekly gain of 12.5 points. Lingering uncertainty over fog‐related port closures in the region likely prevented a further late‐paring of the week’s gains; once the full impact on itineraries is better known at the start of the upcoming week, the extent thereof is likely to prove influential on the direction rates take at the start of the week”, CR Weber said.

Finally, in the Panamax market, rates on the CBS‐USG route commenced the week with a correcting of last week’s observed gains, losing 10 points to ws140. However, with demand remaining fairly active this week, rates gained modestly to conclude at ws145. With supply/demand levels appearing balanced, rates should remain around through the start of the upcoming week”, the shipbroker concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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