03-07-2018

Q3 Tanker Outlook: Americas clean owners’ hopes of exiting doldrums to be dashed

Americas clean tanker markets are expected to remain in the doldrums inthe third quarter of 2018.

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Register Now An abundance of tonnage not seen since Medium Range tankers stacked upoutside US Gulf Coast refinery terminals-post Hurricane Harvey in September2017 is expected to far outpace any potential recovery of inter- andintraregional trade flows.
Owners’ hopes of rebalancing the moribund market will demand cautiousmarketing and discipline.

Position lists stacked with over 50 MR tankers in the 10-day forwardwindow since the beginning of May are weighing heavily on freight rates, withsecond-quarter values ranging between 10% and 20% below first-quarter levels.

“Owners are fixing to do negative voyages to position themselves to otherequally bad markets,” a shipowner said. “So my take is, owners need to step upand it will balance.”

Yet an upward curve of refinery utilization on the US Gulf Coast to a2018 high of 97.6% for the week that ended June 22 from a low of 89.1% in theweek that ended May 11, according to US Energy Information Administrationdata, plus an increasing amount of exports and cargoes fixed during the thirddecade of June are offering positive signs for the coming quarter.

“Week 22 is up almost 60% from week 21 on the number of fixtures,” ashipowner said.

Another shipowner’s take on the situation was that an enormous amount ofdemand was needed to fill those ships available on the USGC.

Hence the most recent 12-20% uptick in rates is deemed to be on wobblylegs at best. S&P Global Platts data show the USGC-trans-Atlantic and theUSGC-Brazil runs opened at Worldscale 82.5 and w140 Friday morning.

LACK OF INTER- AND INTRAREGIONAL ARBITRAGES

A marked lack of arbitrage opportunities for ULSD voyages to Europeextending from the first into the second quarter — as strong demand fordiesel in both west and east coast of South America markets has been pricingthis product out of European markets — reduced trade flows on the backhaul USGulf Coast-trans-Atlantic route to term volumes.

Shrinking USGC refined product exports to Brazil and Mexico have alsohelped build the prompt tonnage overhang.

Deadweight tonnage on the USGC to Brazil route halved in May from Aprilto 748,129 dwt from 1,469,679 dwt, according to data from Platts’ cFlow tradeflow software, as a Brazilian trucker strike was heard to have dampened demandfor offloading of any type of cargo at terminals.

Rising domestic prices, coupled with increased competition from biofuelalternatives, are understood to have kept pressure on sales and imports ofgasoline and ULSD.

Mexican gasoline and diesel imports from the USGC in May fell 6.8% and11% compared with April, respectively, according to Mexico’s energy ministry,and helped swell position lists for vessels on the USGC further.

TIME CHARTER EQUIVALENTS IN NEGATIVE TERRITORY

At w67.5 ($10.75/mt), freight on the US Gulf Coast-UK Continent runreached a low June 5 not seen since October 26, 2016, according to Plattsdata, and soured shipowner sentiment through to June 27, when freight marketsbegan a rebound.

In the face of high IFO 380 CST bunker prices, with the six-port globalaverage, including Houston, New York, Rotterdam, Piraeus, Fujairah andSingapore, indicated by Platts at between $440-$450/mt during the last week inJune, time charter equivalent (TCE) levels ranged at between minus$4,200-$4,500/day, while triangulated TCEs for the front-haul UKContinent/backhaul USGC-UK Continent routes were heard below $1,400-$1,800/dduring that time, levels that did not turn any profit, according toshipowners.

At a lump-sum June freight low of $290,000 for the USGC-Caribbean route,a rate not recorded by Platts since last October, and $165,000 lump sum forthe USGC-East Coast Mexico trip, TCEs for non-Eco mode vessels ranged betweenzero to minus $50/d.

REBALANCING ACT

Naturally, shipowners have started to put up strong resistance at theselevels and some have been taking a rebalancing of the market into their ownhands by sitting vessels. Hiding, sitting, and hoping to be tapped quietlywith a quiet look at a cargo was the name of the game in June, according toshipbrokers.

While some ships perform these voyages better than others, depending onthe vessel’s age and fuel economy, not moving them at all is not an option forowners with financing deals.

“If we are not moving we are losing more money,” a second shipowner said.”We need to have some cash flow because of financing.”

While not yet a structural decision, such as laying up a vessel andhaving it watched by a service provider, a five-day waiting period is hoped toachieve better overall returns, according to a shipping analyst.

“We are not doing negative voyages unless we are positioning to a bettermarket or better voyage,” the first shipowner said.

Source: Platts

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