Clean tanker rates across Asia-Pacific reached multiyear highs June 16, and a record for some routes, as strong demand to lift naphtha cargoes from the Persian Gulf and deliver distillates to Africa and Australia drove up the daily earnings of owners, despite rising bunker prices.
Ships are ballasting to Asia from almost every corner of the world to push up their earnings. It is definitely positive for the owners to position their fleet in the East, one of the brokers said.
Owners of both Long Range I and II, or LR1s and LR2s, are raking in the moolah, earning around $55,000 daily at current freight on the benchmark Persian Gulf-Japan route, according to brokers’ estimates.
Earnings are even better for Medium Range, or MR, tankers around $60,000/day on the key Singapore-Australia route, prompting ships to ballast from even Latin America.
Clean tankers are enjoying hefty earnings at a time when the dirty tankers are bleeding, with VLCCs bearing daily losses of more than $20,000 on key Persian Gulf-East Asia routes. Fundamentals are totally different for VLCCs, where heavy supply with hardly any scrappings in recent years, is more than sufficient to meet the current demand, said a broker in Singapore.
A flurry of LR1 fixtures, including at least 10 since late-last week to move naphtha on the Middle East-North Asia routes, is pushing up rates for the last five successive trading days, gaining a whopping 145 Worldscale points during the period, according to S&P Global Commodity Insights data.
Owners are holding back their ships in anticipation of even further increase, said a chartering executive in North Asia.
“Charterers are not looking, but instead begging for LR1s,” said a broker in Copenhagen.
MR rates on the key South Korea-Australia and Persian Gulf-East Africa routes are in uncharted territory, at all-time highs, breaking the previous records set in April 2020, according to S&P Global data.
For LR1s, the latest deal on the Persian Gulf-Japan route has been done at w375, for loading in the last week of June, a 25-month high.
Sources pointed out that the ongoing rally is different from the previous one in March when rates increased due to the strong demand for gasoil from Europe and dislocation of tonnage due to the Russia-Ukraine war.
This time, the driver is naphtha and not all ships can load the product due to technical restrictions, they said. That a substantial chunk of all LR1s are controlled by a handful of companies such as Hafnia, has not helped matters for charterers, they added.
According to the shipping industry estimates, at the beginning of the week, close to 35 LR1s and LR2s each were projected to be available for loading in Persian Gulf and India during the next three weeks, but with several among them not suitable for naphtha loading and controlled by same owner, rates kept moving up.
The three week LR1 availability is below the average of 50 seen in the last few months, said a chartering source in Japan.
Supply has tightened because cargo count has increased. There have been more than 60 LR1 fixtures so far for loading in the first half of June compared with around 53 in the same period last month, according to the shipping industry estimates. The corresponding increase for LR2 is to 49 from 41.
Australia demand, China exports
As lockdowns eased in China and demand for gasoil and jet fuel picked up in Australia, shipments on MR tankers in North Asia started to rise significantly late-last month and freight tested fresh highs in June, sources said.
LRs, which were on a downturn, smelt an opportunity to fill in the supply gap in North Asia and so did MRs in Singapore, they said. While MRs from Singapore started to ballast to North Asia, LRs which brought in naphtha from the Persian Gulf, got backhaul cargoes and delayed their return to the Middle East, they added.
Finally, demand from Africa meant that rates for loading in India and Persian Gulf for delivery in the continent also rose as supply tightened.
It all conjured up into a scenario where rates for every segment and region pushed up to fresh highs for the year. “It’s a cascading effect, one leading to another,” said a source with an LR owner.
“The market has flipped, MRs in Persian Gulf are leading the charge while North Asia is trailing,” said a chartering executive with a global commodities trading company.
Distortions
In the process, the rise in rates is creating a distortion in the market in terms of unusually high differentials between various segments. A case in point is the discount that LR2s enjoy over LR1s on the key Persian Gulf-North Asia routes. It is currently at w75, according to S&P Global Commodity Insights compared with the usual w10-40.
As a result, it will be significantly cheaper to charter LR2s instead of LR1s but the differential is not of an extent where 55,000 mt cargoes can be loaded on LR2s as ‘partials’, said a chartering source.
Both the ship sizes have slightly different supply fundamentals and the position list is taking care of itself, said a source with an LR owner.
In contrast, the gap between LR1 and LR2 rates on Persian Gulf-Europe routes is small due to limited demand to move gasoil to the continent.
Source: Platts