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MR tanker market's prospects still looking good

Despite the fact that Medium Range (MR) tankers have been faring less than impressive since the start of the year, shipbroker Gibson noted that the market's fundamentals going forward are still quite positive. 

MR tanker market's prospects still looking good
18 May 2014 - 22:09
Despite the fact that Medium Range (MR) tankers have been faring less than impressive since the start of the year, shipbroker Gibson noted that the market's fundamentals going forward are still quite positive. According to the latest report from Gibson, "spot earnings in the MR market have been fairly disappointing this year. Returns on major trades both in the East and the West during the first four months of 2014 averaged at lower levels relative to their position in 2013, with weakness most evident for voyages across the Atlantic. MR earnings at market speed for NW Europe -USAC (TC2) averaged close too $10,000/day on round voyage basis between January and April 2014, compared to $17,000/day over the same period in 2013". 

The shipbroker noted that "triangulation earnings for TC2 and TC14 (Houston to Amsterdam ), which perhaps are a better representation of “true” MR earnings in the West than earnings based on round voyage basis due to growing US product exports, returned $12,500/day during the first four months of this year, down from $18,250/day in 2013. Excess tonnage availability has been one of the main factor behind this weakness in the MR market. A further decline in US gasoline imports, which fell by another 140,000 b/d during Jan-Apr this year versus 2013 , also played an important role. Poor spot earnings had a “spill over” effect on the time charter market, with slowing enquiry and lower period rates in recent weeks. The same can be said for new tanker ordering activity, with just 14 orders placed this year to date in the MR size group". 

However, "despite this malaise, there are supporting factors in terms of fundamentals going forward. In the Asia Pacific products trade has increased substantially over the past several years and is likely to rise further in line with growing regional oil demand, more products shipments into Australia and Japan due to closures of refining capacity, as well as product imbalances/arbitrage opportunities. Also, as the second half of the year has traditionally been a busier period in the East, MR earnings in the region could potentially strengthen in the near term. In the Atlantic Basin, products trade out of the US could also increase further (more than offsetting the ongoing decline in US gasoline imports), as long as US refinery margins remain strong, supported by rising domestic crude oil production, continued restrictions on crude exports and relatively low domestic crude prices relative to international levels", Gibson said. 

It added that "on the supply side, the growth within the Handy/MR fleet is likely to remain at modest levels over the next two years, despite high orders in the recent past. Close to 4% off the fleet in this size group is still single hull, while another 4% is over 20 years of age. The remaining single hulls will have to be phased out by the end of 2015 from their present roles and will be replaced by aging first generation double hulls. The above developments indicate an upside potential for MR returns. However, once all of the tankers currently on order hit the water, this at the very least will limit the rate of recovery in this market. Also, we should not forget that market psychology can at any given time swing  tanker rates in an unpredictable direction regardless of the fundamentals", the shipbroker concluded. 

Meanwhile, in the crude tanker market this week, Gibson noted that in the Middle East, "Vlcc Owners may not have believed that it could get any worse - but it did, and the market crumpled further to leave earnings at sub opex, and at the lowest level since the late summer of last year. Given the weight of visible availability that situation looks set to continue for the first swathe of the June programme, albeit at a faster pace than of late. Rates moved off to as low as WS33 to the East and WS23.5 West via Suez. Suezmaxes had the odd spurt 
of interest, but there remained too many vessels to force any issues so that rates stayed in the low WS60’s East, and low WS30’s to the West for the duration. Aframaxes, on the 
other hand, stayed active throughout and eventually lists thinned enough to force rates up to 80,000 by WS107.5 to Singapore with perhaps a little more to come before the rally fizzles, though much higher is unlikely due to the Suezmax part-cargo alternatives", Gibson said. 

In the North Sea, "fuel oil action helped fill the Aframax fixture sheets, and would ordinarily have provoked a more fruitful rate environment, but crude cargoes stayed upon the light side to counter that potential, and keep the market largely flatline at 80,000 by WS92.5/95 Cross UK Cont, and 100, 000 by WS67.5/70 from the Baltic, where it should remain over the near term. Suezmaxes again found little, and additionally got no extra support from West Africa, or the Med, and rate demands stayed pegged at down to WS47’s for transatlantic options. Vlcc’s scored nothing - the Arabian was shut for fuel oil to Singapore. In theory, though, US$3.4 million for that run would be achievable from Owners",  Gibson concluded. 

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