Markets - Maybe next year!

Dec 15 2017

Despite steady demand for VLCCs, charterers managed to obtain softer rates last week.

At the time of writing (Wednesday) there was increased resistance from owners who had a growing feeling that the market may have bottomed for now, Fearnleys reported. 


Scarce fresh cargo enquiry in West Africa coupled with decreasing delays in transiting through Turkish straits helped charterers into a new round of the all too familiar waiting game.


The sentiment in the Black Sea is holding steady for now, as owners hoped for bad weather to disrupt the current market state of mind.


This week, the big news was the shutdown of the Forties pipeline. Refineries in the area are expected to look elsewhere for crude, as increased delays are expected at the Hound Point loading terminal.


The most pessimistic talk is of about six weeks before loading can commence, however, others say only two to three weeks. Thus far, we haven’t seen a huge impact on Aframaxes trading in the North Sea. But with a shortfall of Hound Point Aframax cargoes, the market will stay quite balanced and rates will stay around current levels for next week.


The best word to describe the Med and Black Seas is dull. The areas are so overpopulated with tonnage that we consider ourselves lucky to still be able to call the market stable at WS90 cross-Med and WS102.5 ex Black Sea.


Moving on to next week, unfortunately we don’t see the market tightening, even if today brought more cargo activity. There are just too many ships available, Fearnleys concluded.


On Monday of this week, ICE Brent futures surged to their highest level in more than two years to over $65per barrel, due to the unplanned shutdown of the Forties crude oil pipeline for several weeks for repairs.


The pipeline is a major artery, which carries up to 450,000 barrels per day from the North Sea to Scotland. The Forties grade makes up the largest stream in the dated Brent benchmark.


The close down of Forties production and subsequent deferment of cargoes in the North Sea is expected to weigh on VLCC demand in the Atlantic Basin, affecting the long haul trade to the East, Ocean Freight Exchange (OFE) said.


An average of four to five Hound Point/Far East fixtures are concluded each month, with three fixed for December loading thus far. Cargoes are typically shipped to South Korea or China.


More significantly, the corresponding jump in the Brent/Dubai EFS spread to a 18 month high is expected to have wider implications for the crude tanker market as WAF crudes are increasingly unattractive to Asian buyers.


For VLCCs, December ex-WAF cargo volumes were fairly disappointing for owners with at least five fixtures failing subjects after OPEC’s agreement to extend the ongoing production cuts until the end of next year. However, Suezmaxes trading in the Atlantic Basin may see some gains, as more WAF crude likely to be diverted to Europe to meet winter demand, boosting cargo demand.


The ongoing widening of the Brent/WTI and Dubai/WTI spreads are also expected to significantly improve the economics of moving US crudes to the East. The Brent/WTI spread is currently trading at around $6 per barrel, a level last seen in late September, which led to an influx of US/Caribs crude moving to Asia.


A potential pick-up in long-haul arb flows from the Americas to Asia and subsequent growth in tonne/mile demand remains the bright spot in a depressed VLCC market, although we have yet to see any hike in cargo enquiries, OFE said.


In the charter market, TEN said it had chartered out an Aframax and two MRs.


The three ships have been fixed for six years and TEN said it expected gross revenues from the contracts to exceed $32 mill.


Concordia Maritime has chartered in another IMOII/III MR.


The contract, which runs from the end of January, is for two years with multiple options to extend. In addition, an MR whose charter expired in November is also having its charter extended for minimum of a further year.


The newly chartered vessel is currently under construction and will be delivered from the shipyard in January, 2018. This contract, as well as the extension, is a joint charter with Stena Bulk. Concordia’s share amounts to 50%. Both vessels will be operated by the MR pool within Stena Bulk Product & Chemicals (formerly Stena Weco).


Meanwhile, according to local reports, Indian shipowners are to lobby the Indian Oil Corp (IOC) and Bharat Petroleum Corp (BPC) in an attempt to relax the 10-year age limit rule on chartering crude oil tankers. 


Of the 42 crude-oil tankers flying the Indian flag, 20 are Suezmaxes and six are VLCCs.


Indian state-run oil refiners have set a 10-year age limit on tankers, as by the time the five-year contract ends, the ships will be 15-years old, reaching the limit prescribed by most crude-oil loading terminals worldwide.


In the S&P sector, SEACOR Holdings has announced that its SEA-Vista subsidiary has agreed to sell one of its ECO-class tankers for around $135 mill.


In conjunction with the sale, SEA-Vista will lease the vessel from the purchaser and simultaneously bareboat the vessel to an oil major for the duration of the lease. The transaction is expected to close before year end.


Sale proceeds will be used to pay down SEA-Vista’s outstanding term loans and revolver, after which SEA-Vista will have about $130 mill of debt outstanding. 


In other news, broking sources reported that the 2001-built VLCC ‘Arion’ had been sold to undisclosed interests for about $22 mill, while Shipping Corp of India bought the 2008-built Suezmax ‘Amoreux’ for $32.75 mill at a tender sale.


Elsewhere the auction of the 2008-buit MR ‘Pretty Scene’ has been concluded in Durban. Hong Kong buyers succeeded in purchasing the vessel for $12 mill.


In addition, the 2009-built ‘Cenito’ and the 2010-built sister ‘Posillipo’ were said to have been committed to Cypriot interests, believed to be M Sea Capital, for $36 mill en bloc.


Switching to newbuildings, Trafigura has confirmed that the eight options original attached to a 22-ship order are now firm contracts.


In its 2017 Annual Report, the commodity trader said that the tanker orders were placed by an Asian financial counterparty to be built in South Korea and China and will be leased to Trafigura upon their delivery with options attached to purchase the vessels at a later stage.


The vessels- Suezmaxes and product tankers - will be built by Hyundai Heavy Industries (HHI) and China’s New Times Shipbuilding.


They will be chartered to Trafigura for10 years, bringing the contract value to $1.5 bill and are due for delivery from the end of 2018 through 2019, with the majority of vessels being delivered in the first quarter of 2019.


Despite directly operating the 30 tankers, Trafigura said that it will remain a major charterer of third party vessels.


More newbuilding orders were reported in the past couple of weeks, including Formosa Plastics contracting three MRs at CSSC OME, bringing the company’s total up to six. The latest vessels were thought to cost around $32-$33 mill each for 2019-2020 deliveries. 


Eastern Mediterranean was also believed to have ordered three MRs at Hyundai Mipo for $35 mill each for 2019 deliveries.


Hyundai Glovis ordered a VLCC at Hyundai for $84 mill on the back of a 20-year charter to domestic refiner, GS Caltex.


Under a contract signed on 8th December, 2017, Hyundai Glovis will ship crude oil from MEG to South Korea, the company announced on the Korea Exchange.


The charter runs from 1st October, 2019 to 30th September, 2029.


Olympic Shipping was believed to have ordered a VLCC at HHI, which was thought to be an option declared. No price was forthcoming.


There was also a newbuilding resale reported. This concerned an Aframax hull at Hyundai Samho, due for delivery next year. She has been reportedly sold to NS Lemos for $44.2 mill.


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