The Asia-Pacific Long Range 1, or LR1, tanker rates have hit their highest in over six months as many ships have been taken up for loading oil products out of China, delaying their return to the Persian Gulf, market participants said Dec. 10.
However, the increase in bunker prices implies that a large part of the gains in freight have not translated to a proportionate increase in earnings for owners.
Among the fixtures heard, ExxonMobil has placed an LR1 on subjects around w125 for naphtha loading early next week on the Persian Gulf-Singapore route, which typically translates to around w110 for a benchmark Persian Gulf-Japan voyage, a level last seen at the beginning of June, Platts data showed.
“While it is a prompt [replacement] and there should be some premium, but when the market is firm on sentiment, owners will follow this number for the next fixture,” a chartering executive said. While ExxonMobil could not be immediately reached for comment, several tanker shipping market participants across Asia confirmed the deal.
Earlier, it was the charterers who were not in a hurry to cover their requirements, but with recent fixtures done at higher levels, several have come forward to take ships at the same time, the chartering executive said.
It is the first time since end-August that the rates on the benchmark PG-Japan route have risen above the key psychological mark of w100, the Platts data showed.
For several months now, LRs were moving naphtha from the Middle East to North Asia and unable to get anything for backhaul voyages due to slow demand, were returning to the Persian Gulf in search of next employment, thereby adding to supply. It was not uncommon for the projected four week LR1 supply in the Middle East to range between 90 and 100.
CHINA DEMAND, LOWER EARNINGS
However, there is an increase in demand for these LRs to load cargoes in China, and even South Korea and Japan.
The firm backhaul market implies that there is a delay in ships returning to the Persian Gulf for their next cargo, a broker in Singapore said.
According to market participants in the tanker market, there is an estimated surplus of one million b/d of clean products in China alone, potentially for export. Most onshore tanks in North Asia are filled with clean products and ullage related delays in turnaround of ships are happening in Taiwan, the broker said.
He highlighted that the recent strong gains in the MR segment have provided strength to the LR1s.
Few owners are controlling the availability of ships at a time when more cargoes are being covered ahead of the holiday season, he said.
Both owners and brokers also point out that before closing their account books at the end of the year, shipping companies are frantically trying to step up their earnings. However, this has become a challenge as bunker fuel prices are around $100/mt higher than what they were six months ago, and this has put a cap on gains.
An LR1 owner can earn close to $15,500 daily for a round voyage on the Persian Gulf-Japan route, up from $9,000 at the end of last month.
Bunker fuel, which constitutes the main expense for owners, have increased substantially in recent weeks, and had bunker prices been at early June levels, the daily LR1 earnings at current freight on this route could have been closer to $18,500, one of the brokers said.