VLCC Rates Set to Fall Further But Could Bottom Be in Sight?

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August 5, 2016

ReutersBy Keith Wallis

SINGAPORE, Aug 5 (Reuters) – Freight rates for very large crude carriers (VLCCs), which hit multi-year lows on Thursday, could slip further next week even as ship owners begin to resist charterers attempts to push rates lower, ship brokers said.

“The market has come crashing down – there are so many ships available. Charterers are taking no prisoners,” a European supertanker broker said on Friday.

“But there is no doubt we are close to a psychological bottom in the market,” the broker added.

Owners of VLCCs have started to sail at slower speeds when ships are empty and idle vessels rather than fix ships at rates that are close to operating costs, brokers said.

That came as rates for smaller Suezmax vessels have dropped to below $9,000 per day on routes from West Africa and India, data from shipping services firm Clarkson show. That compares with daily operating costs of about $9,500 per day, according to accountancy firm Moore Stephens.

“Suezmaxes are trading at below opex. It is not unrealistic to think that VLCCs won’t end up in the same territory,” a second European supertanker broker said on Friday. “I expect this slow market will last into next month.”

A VLCC can carry around 270,000 tonnes of oil, while a Suezmax can transport 130,000 tonnes.

While VLCC cargo volumes from the Middle East have held up quite strongly, the tanker market has been affected by a downturn in other trades including volumes from West Africa and South America, brokers said.

Around 36 cargoes of Nigeria’s Brass River crude are scheduled to be loaded in September compared with nearly 60 that are typical for the trade.

An increase in new vessel deliveries, with more than 40 VLCCs scheduled for delivery from now to the end of this year, has also weighed on rates.

That came as VLCC rates from the Middle East to Japan fell to 32.50 on the Worldscale measure on Thursday, from W36 last week. That is the lowest since September 1, 2015 and equivalent to charter earnings of $16,783 per day.

Charter rates for VLCCs from West Africa to China dropped to around W39.75 on Thursday, from around W43 a week ago. That is the lowest since June 10, 2014.

“Rates remain under heavy pressure with earnings dipping below $20,000 per day from the Middle East to the East,” Norwegian broker Fearnley said in a note on Wednesday.

Daily earnings for voyages from West Africa to Asia are around $20,000 per day, “levels we have not seen for some years,” the Fearnley note said.

Rates for an 80,000 deadweight tonne Aframax tanker from Southeast Asia to East Coast Australia slumped to W76 on Thursday, from W83.25 the same day last week, the lowest since Nov. 19, 2013, as tonnage volumes increased, brokers said.

(Reporting by Keith Wallis; Editing by Christian Schmollinger)

(c) Copyright Thomson Reuters 2016.


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