20-08-2016

Crude oil, product tanker ton miles to rise this year: Navios Maritime

Tanker

Fundamental changes in global crude and product flows should add to tanker ton miles this year, according to Navios Maritime Acquisition Corp, though current freight rates remain in the doldrums.

In the OECD, new low-cost refinery capacity is forcing rationalization of old high-cost capacity and boosting tanker demand, noted Navios Director Ted Petrone during an earnings call Thursday. “Because of this structural shift, the growth in ton miles of refined oil products is expected to continue to outpace the general demand for refined oil products,” said Petrone.

In the Middle East and Asia, he noted refineries have opened or expanded in Saudi Arabia and China, driving product export volumes higher and helping support product tanker trade East of Suez this year.

However, when looking at the second quarter, S&P Global Platts data shows some key clean tanker routes underperformed. For example, the average freight rate for Q2 2016 on the Arabian Gulf to Japan LR1 route, basis 55,000 mt, was $19.36/mt, down from $23.20/mt in Q1. The drop in rates compared with the same period a year earlier is even steeper. The quarterly freight rate on this route in Q2 2015 averaged at $33.96/mt, which makes it almost a 43% drop year on year.

In the US, Petrone cited an abundance of shale crude that has prompted Gulf Coast refiners to export more product to markets such as Mexico, Latin America and Africa. While the country’s product imports have declined, they are coming from farther away and “adding to product tanker ton miles,” said Petrone. On the crude side, he noted “little to no effect” from the lifting of tight US export regulations last December.

Overall, “regional surpluses and deficits, combined with the relatively low cost of transportation” are driving arbitrage trades and increasing product ton miles, he said. “Increasing worldwide product imbalances point to increase ton mile development. This global, multi-directional trade pattern enables product tankers to triangulate, thereby minimizing ballast time and maximizing revenue.”

On the global crude side, “the main structural drivers going forward are moderate VLCC fleet growth, increasing demand from the Asian economies, particularly China and India, as well as growth in the US and the Eurozone,” according to Petrone. He noted onshore storage limits are contributing to more floating storage, particularly in China and predicted “the growth in VLCC ton miles will continue as China imports more crude from Venezuela, Brazil and West Africa as it diversifies its sources of oil.”

But VLCC freight rates are not yet feeling positive momentum from increasing ton-mile demand. The average quarterly rate on the VLCC route from West Africa to the Far East, basis 260,000 mt, was $17.39/mt in Q2 2016, down from $20.56/mt in Q1 2016. This is also a a 31% drop from $25.20/mt in Q2 2015.

Navios Acquisition owns 38 vessels: eight VLCCs, 26 product tankers and four chemical tankers. As of Thursday, August 18 the company said it had contracted 98.2% and 56.6% of its available days on a charter-out basis for 2016 and 2017, respectively. The average contractual daily charter-out rate for the fleet is expected to be $20,679 and $21,020 for 2016 and 2017.

Navios reported Q2 net income of $12.2 million or $0.08 per share for the second quarter of 2016. That was down $14.2 million from a year earlier due to a decrease of $15.2 million in EBITDA and an increase of $0.3 million in amortization of dry docking and special survey costs included in direct vessel expenses. The decrease was partially mitigated by an increase of $0.6 million in interest income; a decrease of $0.6 million in depreciation and amortization; and a decrease of $0.2 million in interest expense and finance cost.

Source: Platts 

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