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Asia VLCC rates fall to new lows in January on weak fundamentals

Asian VLCC rates have declined sharply in January on the back of weak demand and surplus tonnages, market participants said.

Rates for the benchmark Persian Gulf-China route fell 15 Worldscale points since January 2 through to w48 on Thursday, according to S&P Global Platts assessments. China’s Unipec chartered a ship at this rate Wednesday.

The decrease in demand along with the build-up in supply in the Persian Gulf amid OPEC’s cut in crude output for six months starting January contributed to the fall in Asian VLCC freight rates, market participants said.

Market has been under downward pressure in the Persian Gulf with significant decline in cargo inquiries for loading in January, sources said.

The number of loadings in the Persian Gulf and the Red Sea region are estimated at 127 for January, down by around 10% from the previous quarter, when they averaged 140, according to brokers’ estimates.

However, the rise in US crude exports has pushed up the freight on the USG-China route to $7.4 million or 27.41/mt, according to Platts assessment. This has prompted VLCCs to ballast to the Atlantic and cushioned the decline in rates in Persian Gulf market.

There will be volatility in the short term but the fundamentals are weak because a large number of new ships are being delivered this year, said a chartering source in Seoul. VLCCs, which were scheduled to be delivered in late 2018, got delayed to early this year and with peak winter demand for loadings already covered, the rates have started to fall, he said.

More than 30 new VLCCs are projected to be delivered in the first quarter of 2019, or one every three days and this has added to the supply pressure, another chartering source said.

However, out of the new buildings delivered during January, a large number have been taken to load gasoil from Fareast countries such as South Korea and Taiwan to the West.

Nevertheless, last week some cargoes got offers from 5-10 VLCC owners for loadings during February 10-20 and demand for this period is already evident and owners are showing resistance to further decline in rates ahead of the Lunar New Year.

Charterers are not in a hurry to take ships and are “drip feeding” the market with demand, negotiating discreetly with owners for loadings before mid-February to get lower rates, brokers said.
Source: Platts

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