03-12-2018

Tankers: European Long Range freight hits multi-year high on tight supply

Freight rates for Long Range 2 tankers (80,000-159,999 dwt) on the key naphtha route from the Mediterranean to Japan surged Thursday with supply of tonnage tight on delays and attractive freight rates on the dirty market, while LR1 rates are also at multi-year highs for voyages to Asia.

The Mediterranean-Japan route for 80,000 mt cargoes was assessed at $2.5 million lump sum Thursday, up $200,000 from Wednesday, the highest level since S&P Global Platts started assessing the route in February 2016. The Front Vega was heard on subjects to Repsol for a 90,000 mt cargo loading in Cartagena on December 10 for a voyage to Japan at $2.5 million lump sum.

“The LR2 market has picked up after a year, or even a couple of years, of low rates, but it’s not like $2.5 million out of the Mediterranean is the highest ever — a few years back you could see 3 or even 4 million done on UK Continent-East, so rates have historically been much higher than this,” one shipowner said.

Shipping sources said the trend for older LR2 tonnage exiting into the buoyant Aframax sector has continued throughout the autumn, which has reduced clean supply.

LR1 freight rates are also at year highs as activity in the US Gulf Coast has attracted LR1 tonnage, resulting in a tighter European market. The Med-Japan route for 55,000 mt cargoes was assessed at $2.1 million Thursday, the highest assessed since January 22, 2016.

Beside LR tankers, rates for all European clean tankers are at or near year highs amid delays in the Black Sea, which have effectively slowed activity within the region.

In the Black Sea, where many LR2s load naphtha for voyages East, delays are increasing as the days shorten, and new regulations requiring vessels over 200 meters in length to have a tug boat escort through the Turkish Straits has caused increasing delays, currently at about 10 days both for Northbound and Southbound passage. This has pushed up freight rates further as an increasing number of vessels become stuck in the queue to transit the straits.

There also delays in Asia, the shipowner said.

“I’d say the rates now are driven mainly by tightness of supply,” the shipowner said. There have been delays in the East too with ships staying longer in ports with uncertain positions.. also, demand is still growing and we’re in a situation where tonnage is becoming more balanced.”

Demand for naphtha in Asia has remained resilient despite soaring freight rates and what sources in Asia say is an oversupplied market. According to European naphtha suppliers, in recent weeks there has been a push program to the East — reflected in a staggeringly high East/West paper spread — enacted to help clear a buildup of length at Europe’s prompt.

The flow of naphtha eastward from Europe is not unchallenged, however, as both high freight rates and competitive offers from Middle East producers of naphtha and Asian condensate suppliers have posed obstacles to continued physical arbitrage from West of Suez to the East.

The spurt in freight rates for LR tankers has extended across all key loading regions such as Europe, the US Gulf the Middle East, and has lifted the delivered cost for naphtha buyers.

With several LR ships being taken to move cargoes of gasoil and jet fuel to Europe, supply has gradually dried up in the Middle East, sources said.

At the same time, the return of many ships from North Asia to the Middle East has been delayed as cargoes have been moving on backhaul routes within East Asia and the Pacific region.
Source: Platts

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