Markets - Further downward correction forecast

Mar 17 2017

After the sharp downward correction in VLCC rates, we are now in the ‘interim-month-period’.

The disparity in rates between modern and old ships remained, whilst rates for the longer voyages like WAfrica/East were better, Fearnleys reported.

Elsewhere, the situation is quiet with ample tonnage. Rates are likely to remain under pressure for the time being.

Last week was a game of patience for Suezmax owners. The key owners maintained their bullish stance, as they sensed they had the charterers backed into a corner with several weaker candidates rapidly picked off thus thinning the tonnage list.

The game changer was in the 3rd decade in WAfrica where rates accelerated from the mid WS80’s up to WS100 quite quickly. There was further resistance, due to a batch of cargoes showing for South Africa together.

Early April dates for cargoes were slow in appearing in order to dampen the momentum and allow new positions to materialise. The Black Sea and Med mirrored the WAfrica trend and have now slowed with a more steady sentiment prevailing. The outlook for the week ahead is softer, Fearnleys said.

Expectations for higher Aframax rates in the last decade of March came to a sudden halt, due to last week’s lack of activity. Ice Class tonnage is ample and as a result, charterers will seize the opportunity to push rates down.

However, this downward correction could be a short lived, as we expect rates to recover again next week on the back of higher activity during the end of the month.

In the Med and Black Sea, cargoes have been moving under the radar, as owners tried to keep lower rates hidden from the market. After a couple of owners managed to obtain a very good WS120 for prompt and short voyages from Algeria and Libya to Spain, we are again seeing the more normal cross-Med and Black Sea/Med trips going in at WS107.5 levels.

Black Sea April stems came out this week, and with few Aframax stems and a gap of up to three days out of CPC mid-month, we expect a downward correction of the market, Fearnleys concluded.

In the newbuilding market, Hyundai Heavy Industries (HHI) is believed to be in discussions with at least two shipping companies to build several VLCCs, the combined value of which may reach up to $1 bill.

According to the Yonhap news agency, HHI is negotiating with a Hong Kong-based company and another from Singapore to build up to 12 ships, including options.

HHI has won orders to build four ships, including two VLCCs, thus far this year, raising hopes that the new orders for VLCCs will steadily increase in the future, due to the construction of refining facilities in the Southeast Asian region.

“Hyundai Heavy has been clinching contracts since late last year, and the shipbuilder is set to win more deals down the road,” said Rhyu Jae-hun, an analyst at NH Investment & Securities to Yonhap.

HHI returned to profit last year from 2015, thanks in part to reduced costs and improvement in its non-shipbuilding businesses. Net income came to Won682 bill ($594.7 mill) last year on a consolidated basis, a turnaround from a loss of Won1.36 trill a year earlier.

Sales dropped 15% to reach Won39.32 trill, while it reported an operating profit of Won1.64 trill, a rebound from an operating loss of Won1.54 trill in 2015.

Fearnleys reported that Greek interests, believed to be DryShips, had placed orders for two, option two VLCCs at Hanjin Subic Bay, for delivery late 2018 and early 2019, at price as low as $76 mill.

Elsewhere, COSCO (Zhoushan) Shipyard, a subsidiary of COSCO Shipyard Group, has delivered the 152,300 dwt shuttle tanker ‘Anna Knutsen’ to an affiliate of Knutsen NYK Offshore Tankers (KNOT).

Knutsen has one more 160,000 dwt newbuilding under construction at South Korean shipbuilder Hyundai Heavy Industries, which is due to be delivered in July, 2017.

Azeri state energy company SOCAR added seven oil tankers to its fleet last month to expand its transport capacity in the Mediterranean and Caspian seas, according to the company talking with Reuters.

SOCAR reportedly purchased two Suezmaxes and five Aframaxes from Palmali.

As part of its efforts to expand beyond oil production, last year SOCAR leased an oil products terminal in Odessa and an oil products terminal in Ust-Luga.

SOCAR already owns the Black Sea Kulevi oil terminal and port in Georgia, gas stations in Ukraine, Romania and Georgia, as well as a 51% stake in Turkish Petkim Petrochemicals Holding, which produces petrochemicals.

Odfjell has added another two vessels to the fleet via long term charter agreements, and also exercised a purchase option for an existing vessel.

The bareboat charter agreements include two vessels of 36,000 dwt with 28 stainless steel cargo tanks. The vessels are scheduled for delivery in 4Q19 and 2Q20, respectively and the charter agreements run for a minimum of 10 years. The vessels will be built at a Japanese shipyard.

"These charter agreements are further steps in the renewal programme of our large sophisticated chemical tankers. We believe the timing is good, and these charter agreements is a capital efficient way to achieve part of our replacement- and growth targets", said Kristian Morch, Odfjell CEO.

Odfjell also announced today that it had exercised its purchase option for the ‘Bow Architect’, a 2005 built 30,000 dwt stainless steel chemical tanker with 28 cargo tanks for about $16.7 mill. The vessel has been on long term charter to Odfjell since 2005.

Last month, Odfjell entered into another long term charter agreement for two 35,500 dwt stainless steel chemical tankers, to be built at Shin Kurushima in Japan. These charter agreements will run for a minimum of eight years, and the vessels are scheduled for delivery in 4Q18 and 1Q19, respectively.

In the charter market, brokers reported the fixture of the 2013-built VLCC ‘Eagle Vienna’ to Tesoro for 12 months at $27,000 per day, while Koch reportedly took the 2011-built Suezmax ‘Suez George’ for 12 months at $18,000 per day and Mjolner was said to have fixed the 2007-built Aframax ‘Aljalaa’ for six months at $15,500 per day.

CCI was believed to have fixed the 2006-built MR ‘Reliance II’ for six months at $12,200 per day, while ENI was thought to have taken the 2014-built Handysize ‘Atlas’ for 12 months at $14,750 per day. 

Brokers also reported the sale of the 2003-built Aframax ‘Phoenix Alpha’ to undisclosed interests for $12.9 mill and the 1985-built MR to Bangladesh breakers for $300 per ldt.   

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Apr 2018

Denmark, tanker arbitration, ice class, oily water discharge, drone surveys