Monday, August 21, 2017

VLCC rates to remain lackluster on tonnage glut

Freight rates for very large crude carriers (VLCCs) on Asian routes will remain under pressure for at least the next month, facing strong headwinds from a glut of tonnage, brokers said.

“There are around 80 to 90 ships available for charter in the first 10 days in September – that’s about three ships for every cargo,” a Singapore-based supertanker broker said on Friday.

“That’s a bit of a car crash.”

“There are about six or seven VLCCs free for charter now, but the earliest they’ll see any cargo is early September,” he said.That came as owners were attempting to resist moves by Chinese oil trading house Unipec to push rates lower on its latest charter.

Brokers said Unipec was aiming to fix at below 40 on the Worldscale measure for its fixtures on Friday, but owners were trying to hold a line at W43.

Even so, VLCC earnings from the Middle East to Asia fell to around $8,800 this week, a similar level to operating expenses but less than half of average daily break even costs of $22,000.

Rates from the Middle East to Asia are now lower than the low point last year. New York-based ship broker McQuilling Services forecast charter rates this year for a VLCC voyage from the Middle East to Japan would average $26,300 a day in a report on Wednesday.

That compared with $40,700 per day in 2016 and $66,700 in 2015.

“Apart for 2015 and last year it’s been a miserable decade so far for tanker owners,” said Ashok Sharma, managing director of ship broker BRS Baxi Far East in Singapore.

Sharma said average earnings are $24,000 per day so far this year for VLCCs from the Middle East to Asia.

While oil and tonne-mile demand have risen, tanker markets have been hit by a raft of new vessel deliveries.

The International Energy Agency forecast oil demand would rise to 1.5 million barrels per day (bpd) this year, up from an earlier forecast of 1.4 million bpd.

VLCC tonne-mile demand has also risen by 2.5 percent this year compared with last year, McQuilling said.

But the number of VLCCs actively trading is expected to rise 6 percent to 707 ships, McQuilling said.

“There is a huge mismatch between the supply of ships and cargo demand that the market can’t take. This situation is going to repeat itself next year with around 50 newbuildings which is actually quite alarming,” Sharma said.

“The only positive sign is demolition prices which have risen to $400 per light tonne, which would put the price of a vintage VLCC close to $17 million,” Sharma added.

“But there needs to be a great deal of ships sold for demolition – 25 to 30 ships – before vessel scraping makes an impact on charter rates and the tanker market,” Sharma added.

VLCC rates on the Middle East-to-Japan route dropped to W41.50 on Thursday from W42.50 last week.

Rates on the West Africa-to-China route fell to W48.50 on Thursday from W50 last week.

Charter rates for an 80,000-deadweight tonnes Aframax tanker from Southeast Asia to East Coast Australia was at W84.25 on Thursday, compared with around W84.75 last week.

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