Ample supply and cheaper availability of Medium Range tankers are prompting some of the charterers in Asia to split clean oil product cargoes and switch away from the comparatively expensive Long Range 2 vessel.
Recent tight supply amid hectic chartering activity pushed up the rates of LR2s, which were enjoying a sizable premium over the MRs.
Market participants said that large oil refining and trading companies such as Reliance, Marubeni and Itochu have already split their cargoes or are planning to do so for loading later this month and in early February.
The cost of moving a 75,000 mt cargo on the Persian Gulf-Japan route on an LR2 vessel is at $29.86/mt, according to latest Platts data. For the same route, it is much cheaper to move a cargo on an MR at $21.73/mt, the data showed.
“If the charterers have the logistical flexibility, they will [definitely] look at it,” a source with a clean tankers owner said, with reference to switching from LR2s to MRs. The LR2s typically carry up to 90,000 mt of cargo while the MRs will load between 30,000 mt-45,000 mt. Currently, there is an oversupply of MRs, which is keeping the rates by and large subdued.
“We are trying to split the cargoes for end-January and early next month but,” smelling an opportunity now, MR owners are also jacking up their rates, said a chartering executive with a Japanese trading company.
However, LR2 owners are still optimistic that the trend to switch to MRs is unlikely to drag down the market for bigger ships significantly.
The natural chartering window for MRs is closer to the loading dates and therefore not the same as for the LRs, said a source with a clean tankers owner.
He cited the example of Reliance, which was earlier planning to take two MRs on the Sikka-East Africa route but is now having second thoughts.
Market participants said that despite the cost incentive, it isn’t always convenient to split a cargo due to two different sets of loadings, and charterers use it as a bargaining tool to get LR2s at cheaper rates.
Some of this is already happening. One direct consequence of the potential switch to MRs is that rates for LR2s seem to be peaking out and owners are ready to fix ships below the last done levels.
Cargill has chartered an LR2 ship for loading on the Persian Gulf-Japan route at w104, basis 2015 flat rates, significantly lower than the earlier done fixtures around w110, sources said.