Benchmark Asian VLCC freight rates from the Middle East sank to a seven-year low Thursday, with a build-up of available tonnage following a flurry of newbuild deliveries pushing down on rates, according to market sources.
Platts assessed Thursday the key PG-Japan rate down 4.5 points to Worldscale 35.75, basis 265,000 mt, equivalent to $6.95/mt.
The rate was last below this on May 15, 2009, when the PG-Japan rate was $6.76/mt, basis 250,000 mt.
In 2009, the year's low for VLCCs on the PG-Japan route was $6.26/mt basis 250,000 mt, seen on May 13, according to Platts data.
This week, three VLCC fixtures were put on subjects at w35 for a PG-South Korea voyage.
Among the deals heard, SK Energy placed the Newton -- a modern well-approved VLCC -- on subjects for a PG-South Korea voyage loading August 14-16 at w35, basis 270,000 mt.
"There is more competition for a voyage like PG-Singapore than PG-Far East as owners would prefer to take lower earnings per day on shorter voyages," said a Singapore-based VLCC owner.
Market sources said the premium for shorter voyages had diminished, as owners were keen to take shorter voyages in a weak market, hoping the market dynamic would change after the vessel completes its voyage.
Meanwhile, owners of well-approved modern vessels had been resisting giving into rates below the psychological barrier of w40, but there was stiff competition from the number of handicapped vessels in the market.
Handicapped vessels -- defined in the market as those built more than 15 ago or lacking approvals -- accept discounted rates.
"If VLCC rates go too low then owners would employ ultra-slow steaming or just wait -- waiting is cheap at these bunker levels, about a loss of w0.4 per day," said a VLCC shipowner. According to industry estimates, there will be about six newbuild VLCCs per month coming for the rest of the year, and in total for 2016 there are 60 such deliveries slated.
The smaller Suezmax segment, a sometime competitor to VLCCs for cargoes, is expected to see a total of 40 newbuild deliveries this year.
Newbuild vessels lack full approvals and typically discount on their first voyage, sources said.
The heavy addition to tonnage coupled with a lack of vessel scrapping saw fleet growth outpace demand, and sources said that demand for VLCCs had been robust.
According to industry estimates, 132 VLCC fixtures were counted for June and 137 for July, compared to April and May which both saw 128 cargoes.
"Charterers are taking advantage of the low rates and rushing through their program as quickly as stem dates are available. About 65 stems in August are covered," said a broker.
VLCC owners' earnings on Persian Gulf to North Asia routes are less than $20,000/day, according industry estimates.
A broker said that for a Ras Tanura-Ulsan voyage at w36.5, basis 270,000 mt, the time-charter equivalent earnings would be $18,300/day.
--Wanda Wang, firstname.lastname@example.org
--Edited by Alisdair Bowles, email@example.com