Asia Tankers-VLCC Rates Steady, Owners Resist Further Cuts

Posted by Joseph Keefe September 2, 2016

Daily VLCC earnings fall to around $10,000; vessel deliveries, shorter voyages weigh on rates.

Freight rates for very large crude carriers (VLCCs), which fell to multi-year lows on Thursday, are likely to hold steady around current levels as ship owners resist charterers' attempt to push rates lower in an over-tonnaged market, ship brokers said on Friday.

Earnings for a VLCC charter from the Middle East to Asia have fallen to $9,000-$13,000 per day depending on destination, brokers said.

That compared with break-even costs for a VLCC of $21,200 per day, according to Robert Hvide Macleod, chief executive of leading tanker owner Frontline Management.

"I don't think there's too much downside left," a European supertanker broker said on Friday.

"I think rates will move sideways - staying around 30 on the Worldscale measure. It depends on which charterer is fixing and what the ship is like."

Supertanker rates have been hit by a raft of new vessel deliveries and ships coming out of dry dock from repair, where owners have accepted lower charter rates so their ships can be immediately employed rather than wait for cargoes.

"Owners who need to fix their ships straight from shipyards or dry docks are willing to take a haircut on rates rather than have their ships hanging around unemployed," said a Singapore-based tanker broker.

"But the resistance is building - with earnings down to about $10,000 a day, it doesn't make sense for some owners to keep vessels operating at a loss."

Refinery maintenance in Asia has also reduced the number of cargoes available for September-loading.

Loading disruptions in West Africa have cut the volume of cargoes and shortened sailing distances as buyers seek alternative supplies, thereby increasing the number of tankers available for charter, shipping executives said.

India has replaced Nigerian crude with oil from the Middle East, making a huge difference in vessel availability and journey times, Frontline's Macleod said in an earnings call on Wednesday.

"One VLCC can probably deliver four cargos from the Middle East (to India) in the same time span as one cargo from Nigeria," he said.

VLCC rates from the Middle East to Japan fell to W32.50 on Thursday, the lowest since Aug. 28, 2015, from W35 a week earlier.

Rates for VLCCs from West Africa to China dropped to about W39 on Thursday, the lowest since June 6, 2014, from W39.75 the same day last week.

Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia slumped to around W62.75 on Thursday, the lowest since Nov. 11, 2009, on lack of cargoes. A week earlier, they stood at W68.25.