Freight rates for petrochemical cargoes loading from Middle East, southeast (SE) and northeast (NE) Asia are expected to come under pressure as a result of lacklustre demand for spot tonnage, industry sources said on Friday.
Demand for tonnage was severely affected by deteriorating major Asian economies, with countries struggling to find buyers for their surplus petrochemical production.
Traders remained cautious, as depreciating local currencies had increased import costs resulting in limited spot enquiries seen on all trade lanes.
“There has been a considerable drop in trading activity in my company. Month on month, chartering volumes has definitely dropped for me,” according to a charterer based in southeast Asia.
In the Middle Eastern region, most owners had managed to secure employment for their vessels up to early-July with contractual volumes and short-haul voyages.
However, the lowered demand for spot tonnage had resulted in some vessels seeking prompt and second-half June loading cargoes.
“All my ships are fixed to the start of July with a mixture of short-haul, COA [contract of affreightment] and Europe-bound cargoes. For AG [Arabian Gulf] to India, there has been a few cargoes floating due to the strict requirements but other less stringent cargoes have been snapped upon entering the spot market,” said a ship owner based in Middle East.
According to a vessel owner, there were some July loading cargoes heading towards Asia but competition remained stiff as charterers had a large pool of ships to select from.
Some industry participants expect freight rates to come under downward pressure as owners would have to lower their offers to secure the cargo.
There were reports of port congestions faced at a handful of west coast India (WCI) terminals, with vessels facing waiting time of two to five days causing disruption to schedules.
However, replacement vessels were easily found due to the length in tonnage supply, which kept, freight rates stable.
“A lot of owners are finding it hard to increase freight rates these days despite congestions at some Indian ports. Charterers who are looking for replacements are only willing to fix if the rate was on par or lower than their original fixture,” said a SE Asia based ship broker.
Moving forward, some players expect charterers to return to the spot market in the coming weeks as the Middle Eastern market typically slows down ahead of the Eid Al-Fitr holidays that mark the end of the Muslim fasting month of Ramadan.
On the other hand, others expect an increase in open vessel space as weak global macroeconomics would impact demand for petrochemical cargoes.
The SE Asian shipping market continued to experience quieter levels of activity as a lack of spot enquiries had caused a build-up of prompt to second-half June tonnage supply.
Some vessels were well employed into first-half July with contract of affreightment cargoes but others were looking for employment amid limited clean petroleum product (CPP) and petrochemical demand.
“Charterers these days are putting spot cargoes into their own programme to keep their time-chartered vessels employed which has kept the market very quiet,” said a SE Asia based ship owner.
As several vessel owners were desperate to fix their ships after sitting idle for a week or more, they were willing to lower their offers to below break-even margins to secure the business in a private negotiation.
Charterers expect freight rates to soften further and hence, were withholding cargoes, according to a shipbroker.
For cargoes heading towards northeast Asia, there were several requirements heard during the week.
According to a vessel owner, there were several cargoes of Pygas, PX, MTBE, paraffins, acetic acid, base oils and methanol for loading end June to early July.
Despite increased demand, freight rates were unable to move higher due to the oversupply of ships in the region.
Intra-NE Asian demand had remained weak, especially with depreciation of the Chinese yuan, as importers were holding back on petrochemical purchases.
Moreover, charterers were in no rush to fix their cargoes given the number of vessels available for first-half July loading.
“A lot of our buyers have ceased importing large volumes of [petrochemical] cargoes due to the depreciation of the yuan. As there are so many ships I can choose from, I am in no rush to start negotiations,” a NE Asia-based charter said.
“Right now, I am working on a first-half July loading cargo and already my broker has returned with some very sharp numbers from four to five owners,” the charterer added.
According to a shipbroker, there were about five to seven ships sitting idle around the South Korea and Japan regions.
As most charterers had cleared their trading book for June, these ship owners were heard offering discounts for the earliest available cargo.
A 3,000 tonnes cargo for end-June loading enquiry received four to five offers, with the charterer ending up booking the cheapest ship.
There were several small parcels looking for NE Asia heading towards SE Asia, particularly to Vietnam but no fixtures were heard concluded during the week.
In Conversation With Mr. Pradeep Rawat, Chairman National Shipping Board
India Tanker Shipping Trade Summit 2018