Tankers: Medium Range freight rates touch year low

MR-Tanker

Freight rates for Medium Range tankers have dropped and are again teetering on the edge of year-low levels a few weeks into the fourth quarter, with overtonnage pervasive and the gasoline arbitrage route westwards unattractive to traders as US stocks keep building.

While the arb to the US is deemed to be “marginally” open, according to a trader, other routes out of Northwest Europe, such as trips to West Africa and the Persian Gulf, have taken a fair bit of the gasoline trade so far in October.

The UK Continent-US Atlantic coast route, basis 37,000 mt, dropped to Worldscale 100 Tuesday as the Hafnia Andromeda was heard on subjects to Spain’s Cepsa loading 37,000 mt of gasoline in Algeciras October 24 for a trans-Atlantic voyage at that level.

“There are so many vessels around…There is definitely scope for rates to fall down further depending on how desperate the owners get,” said one broker. “There is definitely potential for rates coming below w100 now, and we are rolling into Q4.”

Another broker said there were more than 10 MRs able to load in the Amsterdam-Rotterdam-Antwerp area prior to October 21, and as cargo volumes were not expected to pick up, low freight rates were likely to persist.

The rate for UKC-USAC route for 37,000 mt cargoes was last seen at w100 September 19, and has not gone below that so far this year. The route peaked at w247.5 August 31 amid a frenzy to supply the US and those markets normally supplied by the US Gulf, which lost about 18% of its refining capacity due to Hurricane Harvey.

With the US Gulf export market currently a shadow of its normal self, little business is currently to be had on routes to South America and the diesel backhaul route to Europe is all but dead.

“October has been really bad so far, rates started at w125 and now we are down at w100 halfway through,” said one shipowner. “There is obviously a lack of cargoes and too many ships, which is what you get when the US market isn’t working after Harvey and you get ballasters coming up into the UKC from WAF and the US.”

Gasoline flows to the US and East Coast of Canada from Europe have amounted to only around 823,000 mt so far in October, compared with 1.847 million mt in September, according to data from cFlow, S&P Global Platts trade flow software.

However, with winter months looming and the need for ice class vessels on many routes, rates are set to rise as temperatures drop.

“A time will come, and a lot of MRs will come on Canadian trades, Russian, Finnish, and perhaps Swedish trades when it all comes down to the ships being ice class,” said another shipbroker. “The ice can build up quite easily and charterers will not take on non-ice class.”

Also, rates still compare well to those seen in October last year. In terms of dollars per metric tonne on the UKC-US Atlantic coast, the freight rate now stands at $11.30/mt, still far above the $10/mt at which the route bottomed out last year, last seen October 5, 2016.

The average rate for the whole of October last year was $11.43/mt, while the mean for November and December was $16.38/mt. Using this year’s flat-rate base, the corresponding Worldscale rate for those months would have been w145. Shipping futures for the UKC-USAC route, basis 37,000 mt, were trading at w129 for November and w151 for December Tuesday, according to a broker.

Source: Platts

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