The ups and downs of the product tanker freight rates have defined the market during the course of the year, as ship owners went from a down market to one of extreme strength.
According to the latest report from shipbroker Gibson, "over the course of this year the product tanker market in the East has moved from extreme weakness to a remarkable strength.
Back in February/March 2012, earnings for all product tanker categories in the region sunk below fixed operating expenses, to their lowest level in over a decade. Now the opposite is true - clean tanker returns have surged to their highest level since early 2009. Tce earnings for LR2s trading from the Middle East Gulf to Japan have averaged $24,500/day this month (at market speed), while LR1 earnings on the same route averaged at $19,250/day. The returns for MRs operating Singapore – Australia followed a similar trend, jumping to $16,750/day" it said.
As it is frequently the case, the latest strength in the product tanker market in the East has been driven by tight supply/demand fundamentals, with strong levels of chartering interest in recent weeks notably limiting tanker availability. Gibson added that "however, for larger product tankers the latest tightening in supply is also in part attributable to the exceptional weakness in earnings earlier this year as well as in 2011, as some tanker owners were prompted to move away from trading clean to try their luck in the dirty market. Since the beginning of last year, at least 44 coated tankers between 80,000 to 120,000 dwt have switched from clean to dirty trading. There are currently 244 coated tankers in this size group, and so the number of vessels that left clean employment represents a sizable 18% of the fleet. Not surprisingly, market conditions are tight at present! A number of LR1s also switched from clean to dirty, although the percentages are lower here – but still at 7% of the trading fleet" it said in the report.
Gibson also mentioned that "now, with clean product tanker returns at very robust levels, there may be a temptation to switch back to trading clean! However, just a few have done so recently, as while it is very easy to move from clean to dirty, it is not so simple to do it the other way around. Apart from direct clean-up costs and waiting time involved, owners also need to discount their first three fixtures. These indirect costs can reduce significantly, if not destroy completely the economic benefits of switching to clean, depending on how long the strength in the clean market lasts. Thus owners need to think very hard before moving from dirty to clean trading. However, for those who are already trading clean, these “barriers” to enter the market mean that tightness in supply (and with it higher returns) could last for a while longer, particularly if demand remains at healthy levels" the London-based shipbroker concluded.
Meanwhile, in the tanker market this week, in the Middle East, Gibson said that "it should have been a busy week for VLCCs, but Charterers didn’t read the script, and decided to hold back to allow sentiment to soften, and re-set the market at a lower level in that, they succeeded, and rates eased to around WS 47.5 East and WS 30 West. Further erosion is possible, but now there is too much to do in too short a time to prevent a much more active period developing. Suezmaxes found very little to get their teeth into and look set to remain top heavy for some time to come. Rates for what was done showed no better than WS 70 East for even short hauls, with under WS 40 available to the West. Aframaxes stayed within their anticipated 80,000 by WS 90/92.5 rut to Singapore and the barometer says 'no change'" the shipbroker said.
In the Mediterranean, "Aframaxes slumped to yet another low as availability continued to swamp demand. Rates bobbed around within an 80,000 by WS 72.5/77.5 band cross med, and will only be able to make a break out once 'winter factors' disrupt things. Suezmaxes saw moderate enquiry, but yet again it was never nearly enough to force any issues, and rates remained at around 140,000 by WS 62.5 from the Black Sea to Europe, and down to 135,000 by WS 47.5 for runs to the states. Bosphoros delays are the next hope for owners" Gibson said.
Finally, in the North Sea, "the Aframax market here will remain flatline.80,000 cross UKC goes at WS85,and 100,000 from the Baltic at WS 57.5. Suezmaxes can only be estimated due to the lack of volume - 135,000 by WS 50 to the states - and VLCCs ask for no less than US$4.3 million to Singapore, but takers are few for now. Availability, however, is always thin so Charterers cannot be complacent" the report concluded.