A spurt in demand for Medium Range tankers and limited resupply of vessels in the Persian Gulf and West Coast India regions pushed freight rates to the highest level this year for shipments to the Far East, according to sources and S&P Global Platts data.
The steady stream of naphtha and mixed aromatics cargoes, a blending material for gasoline, helped push up demand for MR tankers capable of loading 30,000-40,000 mt parcels.
Platts assessed the Persian Gulf-Japan and India-Japan MR routes at parity to w180 basis 35,000 mt Thursday, the highest for the year. Both these routes surpassed the last peak of w176, hit on September 26.
“The WCI-Japan MR rate is high because of the tight Singapore market. There are mixed aromatics cargoes going to China and quite a few regional short-haul cargoes,” a shipbroker source said.
Typically, vessels ballast from Singapore to load cargoes in the WCI region and the current demand for moving mixed aromatics grades is soaking up a good amount of MR tonnage.
In addition, the busy North Asia market has drawn tonnage away from the Singapore including MR and LR tankers.
“A key factor is the fifth round of clean petroleum products export quotas that were issued three weeks ago by the Chinese government, [which is] adding another 5 million mt of exports for early November until the year-end,” a source with an MR shipowner said. HIGH MR RATES MAY SPUR LR DEMAND
At current MR rates, charterers were keen to combine their MR stems and load on to LR2 tankers that are capable of carrying between 75,000 mt and 90,000 mt cargoes, market sources said.
The narrow spread between LR1 — which can load 55,000-65,000 mt cargoes — and LR2 rates encourages charterers to move to smaller LR1 vessels.
MRs are currently at $27.38/mt for the Persian Gulf-Japan 35,000 mt route, which is almost $9/mt higher than LR1s and LR2s, which are at $19.01/mt and $18.63/mt respectively for the same voyage. Sources said this could lead some charterers to combine their MR stems and load them on LR2 tankers.
Normally, the spread between the LR1 and LR2 Persian Gulf-Japan Worldscale percentage rates is in the w10-w15 points range. In the last two weeks, the spread has stayed in a w3-w5 points range, Platts data showed.
Platts assessed the LR1 and LR2 Persian Gulf-Japan rates at w125 and w122.5 respectively on Thursday.
Also, the current quarter has already seen a rare warp in market dynamics caused by the devastating September storms in the US, which boosted demand for product tankers.
In early October, rates for LR2s flipped to a premium to LR1 rates on the Persian Gulf-Japan route. The highest premium was at w12, when the rates for LR1s and LR2s on the Persian Gulf-Japan route were assessed on October 6 at w130 and w142 respectively, according to S&P Global Platts data.
While charterers would prefer to use LR1s to lift naphtha cargoes on the Persian Gulf-Japan route due to the narrower spread to the LR2 rate, not all charterers are able to switch from LR2 to LR1 cargo size at short notice.
“It is peculiar that the LR1-LR2 spread has been like this for two weeks now, within the w5 range. There is enough activity on LR2s to keep rates where they are. But LR1s have not had enough energy to go up further,” a source with an LR shipowner said.
“I think it would be a week or two before we see any change, and there will be more LR1 cargoes coming in,” the source said, adding that this would strengthen owner sentiment.
Sentiment in the LR1 tanker market was firmer as tonnage tightened, with LR1s busy with short-haul cargoes in PG and North Asia. The flurry of activity in North Asia saw charterers keen to snap up LR1 tankers for South Korea-Singapore voyages amid high demand for MR tankers. The same was seen in the PG region. This additional employment would delay the return of LR1 tankers to the PG region.
“Last week, people thought there were a lot of LR1s, but a number of them have been taken, and many vessels are available from positions like Karachi or other PG ports from short-haul voyages. Charterers find it difficult to take these vessels as the schedules are not confirmed, so with fewer options, rates could go up next week,” a charterer said.
Source: Hellenic Shipping News.