Asia Tankers-VLCC Rates Strengthen on June Charters

Posted by Joseph Keefe June 3, 2016

30-40 Mid-East VLCC cargoes still to be contracted for June; Posidonia shipping event next week in Greece may dampen activity.

Freight rates for very large crude carriers (VLCCs) could rise next week as charterers complete their June loading programme, although activity may be muted due to a key shipping event in Greece, ship brokers said.

"There is potential for charter rates to firm further. There are plenty of ships but there are enough charters for owners to hold the line," said a Singapore-based supertanker broker on Friday.

Charters for 30-40 VLCC Middle East cargoes have still to be fixed for loading in the last 10 days of June, the broker said.

These are expected to be contracted by June 15 when the first Saudi Arabian cargoes for July loading are expected to be released, the broker added.

But the Posidonia maritime event in Greece next week, which will attract thousands of shipping executives, could dampen activity.

Daily VLCC earnings rose to around $47,500 on Thursday for a voyage from the Middle East to Japan, rebounding from the previous week and continuing the trend of volatile peaks and troughs, chartering data on the Reuters Eikon terminal showed.

"Owners are getting about $50,000 a day so they are not hurting," the Singapore broker said.

Norwegian tanker owner Frontline estimated that the average cash break-even of a VLCC is $22,500 a day this year.

"These rates are the daily rates that our vessels have to earn to cover their budgeted operating costs and dry dock, estimated interest expense, hire, instalment on loans and general and administration expenses, Frontline chief financial officer Inger Klemp said in an earnings call on May 31.

That came as Frontline chief executive Robert MacLeod saw strong demand for tankers going forward, partly due to increased U.S. imports.

"Current U.S. production leaves the U.S. short (of) about 7 million barrels per day," MacLeod said in the same earnings call.

Rates from West Africa to China have also risen after the force majeure in most Nigerian ports was been repealed, Norwegian ship broker Fearnley said in a note on Wednesday.

"Although charterers tried to move carefully under the radar, the market turned around to owners' favour. The momentum has definitely turned into owners' favour. They have all the intention to push numbers further up," the Fearnley note said.

VLCC rates from the Middle East to Japan rose to about 64 on the Worldscale measure on Thursday, the highest since May 18, up from around W52.25 a week earlier.

Rates for VLCCs from West Africa to China climbed to about W64.25 on Thursday, up from W55.50 the same day last week. That's the highest since May 17.

Rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia climbed to about W93.50 on Thursday compared with W89 last week on stronger cargo volumes, a Singapore-based Aframax broker said.