Only scrubber-fitted VLCCs are earnings positive as bunker prices spike – sources

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The rising discounts which high sulfur fuel oil is enjoying over its low sulfur cousin has resulted in a clear two-tier market for VLCCs, where tankers with scrubbers are showing daily earnings, or else running into losses, market participants said Feb. 16.

Scrubbers are exhaust gas systems, which remove excess sulfur from bunker fuels, and many ships had installed them in the run-up to the implementation of a low sulfur regime for maritime fuels last year. This enabled them to continue using cheaper high sulfur bunkers and not have to make the transition to the expensive LSFO. However, the total number of ships that installed these scrubbers was just around 5% of the global merchant fleet.

The narrow discount that HSFO enjoyed over LSFO for a part of last year, left many owners with second thoughts of installing scrubbers, while others were concerned they would not be able to recover the installation cost which ran into millions of dollars.

However, with LSFO prices in Singapore rising above the key psychological mark of $500/mt, this is changing and in many tanker segments, particularly VLCCs, only those with scrubbers installed are making money on key routes.

Relatively older VLCCs, which are fitted with scrubbers, are likely to earn $10,000/day more than the younger ones without scrubbers on the key Ras Tanura-Ningbo route, a senior shipping executive in Athens told S&P Global Platts.

This is because of the wide discount that HSFO enjoys over very low sulfur fuel oil, which is estimated at around $120/mt in Singapore. The discount had slipped to just around $60-$70 in early April last year, Platts data showed.

The sharp rise in bunker prices this year has eroded most of the owners’ earnings and they are struggling to get more value from each Worldscale point that accrues to them.

The high bunker fuel prices have hit the owners’ pockets and their earnings are negative, a source said. However, earnings of owners who have scrubber fitted ships is still positive, the source added. This is the case with ships that have either open loop, or closed loop scrubbers installed.

VLCCs using VLSFO have been losing anywhere between $2,400-$3,200/day when chartered out for spot voyages on the Persian Gulf-North Asia routes during the last two weeks, according to brokers’ estimates. However, those with scrubbers can use the cheaper HSFO and earn close to $5,000/day, the estimates showed.

For scrubber fitted VLCCs that opt for shorter voyages such as the PG-West Coast India route, daily earnings are even higher at around $14,000 compared with $6,200 for supertankers using LSFO, brokers said.

The prevailing HSFO-VLSO spread can revive the interest of installing scrubbers on supertankers and even smaller ships, a broker in Singapore said.

As of early February, there are more than 4,500 ships installed with, or have made orders for, scrubbers, according to the estimates of Hamburg-based DNV-GL. Dirty tankers have an almost 15% share in the scrubber-fitted, or on order, segment.

However, market participants point out that the low and high sulfur fuel oil spread has to consistently stay above $100/mt for there to be a spike in orders for scrubber fitted ships.

Source: Platts

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