Two Panamax vessels were observed carrying clean products in July, going through the process of cleaning and switching to the Long Range 1 market in the Americas.
The Panamaxes owners are believed to be positioning themselves for increased ton mile demand and hence higher revenues in the LR1 sector, as large volumes of low-sulfur gas oil need to be moved into position at bunker terminals ahead of the IMO 2020 global 0.5% sulfur bunker mandate.
The Talara, owned by Navig8, and the King Dorian, owned by Mercator Navigation, were seen placed on subjects carrying clean products on the US Gulf Coast-trans-Atlantic run, traditionally a backhaul ultra low sulfur diesel route after vessels discharge gasoline from the UK Continent on the US Atlantic Coast.
The Talara was set to load 60,000 mt in the US Gulf Coast July 22 to make a trans-Atlantic voyage for an unknown charterer. The King Dorian, previously named the Norstar Invictus, made the same voyage for Valero, loading in the Gulf Coast July 26-28.
Data from cFlow, Platts trade flow software, show these vessels as crude carriers. Market sources suggested that these vessels were being cleaned to join the LR1 market, likely in anticipation of IMO 2020.
With IMO 2020 between 1.5 million b/d and 3 million b/d of high-sulfur bunker fuels will be replaced by 0.5% sulfur bunkers, according to industry forecasts and it is widely agreed that both inventory and access to low-sulfur fuels will have to be built ahead of January 1, 2020. This will make for increased gas oil stem movements on the global clean tanker market from mid-2019 onward, in order to build inventories and segregated infrastructure at least at the global bunkering hubs, if not at the smaller ports.
Even at the low-case forecast of 1.5 million b/d in incremental low-sulfur bunker demand, this would make for a 6% demand increase for which stores will need to be built during 2019, according to Scorpio Tankers President Robert Bugbee.
With Panamaxes making around $4,000-$5,000/d on time charter equivalent earnings currently, global LR1 time charter revenue is estimated at $10,500/d as an average so far in 2018, with a low of $8,000/d recorded for the Scorpio LR1 fleet for Q3 days booked so far (35% of total days), according to the company’s latest financial results.
For 2019, the LR1 TCE are likely to increase 14% from to-date 2018 average earnings toward the upper end of a $10,500-$11,000/d range, according to McQuilling Services LLC, as the transport marine advisors expect a quicker recovery ion freight rates for the clean market than the dirty.
“Hold that against what you would alternatively do as a Panamax, I think it’s a very good decision,” a shipowner said. “When cleaning, you get your money back and then some. It might be painful at the front end to clean, tanks need to be coated and it is difficult to do.”
The process of cleaning a Panamax vessel takes several months, as only certain cargoes can be stored and shipped during that time.
“Naphtha trade is historically done on Panamaxes. Even though naphtha is clean, shipowners don’t care if it goes on a dirty tanker, because it will be blended anyway,” a shipbroker said. “Those Panamaxes were probably involved in that kind of trade. The last three cargoes with each of those ships was naphtha; meanwhile, they’re cleaning along the way.”
Panamaxes are often used to carry naphtha to Venezuela from the US Gulf Coast to dilute Venezuelan heavy crude oil, such as diluent crude oil. However, some owners are reluctant to commit Panamaxes to taking naphtha to Venezuela as a sole choice during the months-long cleaning process.
The cleaning process for a Panamax tanker was reported to cost $300,000-$500,000, depending on the condition of the tank coating and the type of cargoes carried during the cleaning process, and can take several months.
With the slow summer season and, in particular, slack demand into the high USGC export markets of Mexico and Brazil during the month of June and July driving rates down on the Medium Range sector, market participants are concerned that incoming LR1s could further depress MR freight.
“I don’t want to encourage this trend for selfish reasons. I want them all to stay dirty, but it does make sense,” the same shipowner said.
Others have suggested that the commissioning of Panamax vessels for LR1 tradeflow may occur prematurely in view of IMO 2020, considering it is 18 months ahead of the mandate’s implementation.
“Recently we have not seen a significant shift [from a high level] of dirty to clean Panamaxes, although the decision to do this does not surprise me,” a source at McQuilling Services said.
Source: PlattsPrevious Next