Tankers: Persian Gulf vs Red Sea freight premium disappears as Harvey disrupts trade

In International Shipping News 01/09/2017

The premium of up to 10 Worldscale points that LR1 tankers briefly enjoyed on the Persian Gulf-Japan route over the Red Sea-Japan route has all but disappeared, as fresh demand has emerged in the backdrop of the devastation caused by Tropical Storm Harvey in Texas, market participants said on Thursday.

“The premium no longer exists. It was there last week but is not valid anymore,” a Singapore-based chartering executive with a clean oil tankers’ owner said with reference to these routes that are popular for moving naphtha from the Middle East to North Asia.

There is more demand to load distillate cargoes for delivery into ports in the West, and this has completely reversed the situation.

On the contrary, owners will now seek premiums of 5-10 points to provide their LR1s for loading in the Red Sea, the executive said.

Market participants pointed out that there are now more opportunities for moving gasoil cargoes from India and the Middle East to Europe and gasoline and jet fuel cargoes to the US.

Typically, European gasoline gets shipped to the US, which in turn exports gasoil to Europe. This trade has now been disrupted by the storm in Texas. LR1s will seek employment to fill the gaps in this trade, which may not necessarily involve loading cargoes in the Red Sea.

There aren’t many ships opening in the Red Sea, which is why ballasting has to be done from elsewhere in order to load cargo in the region, an owner source said.

This ballast is unlikely to take place from Europe or East Africa and most likely to happen from Asia, which explains the possible restoration of the premium, he added.

The Red Sea-Japan LR1 on Wednesday was assessed up 10 Worldscale points at w122.5, which is on a par with the benchmark Persian Gulf-Japan rate, according to S&P Global Platts data.

Market participants said that the rates for lifting cargoes in the Red Sea are likely to be even higher now compared to the Persian Gulf rates, in the wake of the rising rates for loadings in Europe.

The LR1 rates for UK Continent-US Atlantic Coast were assessed five Worldscale points higher at w115 on Wednesday, the Platts data showed. The MR rates on the same route rose a whopping 55 Worldscale points day on day to w215 on Wednesday, the data showed.

The spike was much more significant for the MRs on the same route, as large volumes of transatlantic cargoes are transported in smaller parcels. Europe’s production of refined products is also expected to squeeze, as more than a dozen refineries will go into maintenance over the next month, thereby turning to focus into more loadings from Asia.

Also, the lifting of refined products continues unabated from the Red Sea ports of Yanbu and Rabigh, but the supply of ships is relatively tight.

The output of refined products in the Red Sea region has increased in recent years due to increasing refining capacity, such as the 400,000 b/d Yasref joint venture between Saudi Aramco and China’s Sinopec Refining Co.

The number of ships naturally opening in the Red Sea ports has not kept pace with this rising output, resulting in the premium to load in the region.

However, this trend flipped last week — only the second such instance this year after five days in late-March. But the discount did not exceed 2.5 Worldscale points at the time vis-a-vis a significant 10 points last week.

Source: Platts

Genscape: Product Tankers Divert to U.S. as Post-Harvey Demand Spikes

In International Shipping News 01/09/2017

A number of European-sourced gasoline cargoes on the water, which were initially bound for destinations in West Africa and within Europe, have now changed destination to the U.S. in the wake of Hurricane Harvey. So far, Genscape has seen that around 111,000 metric tons (MT) of European gasoline diverted to the U.S.

Product tanker ‘Stenaweco Venture,’ which left Finland’s Porvoo refinery on August 2, changed her destination Thursday, August 31, from Lome, Togo, to Cape Canaveral, Florida, with a new ETA of September 9. Similarly, the ‘Elandra Oak,’ which left Milford Haven, UK, on August 29, changed her destination from Lome to Port Everglades, with a new ETA of September 10. Both are carrying 37 to 38 kilo metric tons (KMT) cargo lots of gasoline.

Genscape observed NWE verses NYH gasoline spot prices from July 27 to August 30, 2017

The ‘Elka Nikolas,’ which left the Lithuanian port of Klaipeda on August 26 and declared ARA as her destination, is now bound for New York, with an ETA of September 10, also carrying around 37 KMT of gasoline.

Freight rates for chartering product tankers to move gasoline from Europe to North America have also spiked sharply since the start of the week. As gasoline prices in the U.S. shot up a total of 20 cents per gallon from Friday, August 25, to Wednesday, August 30, there has been increasing interest to move petroleum products trans-Atlantic from Europe. This sudden doubling in freight costs broke a long recent spell of comparatively cheap trans-Atlantic freight rates.

Baltic Exchange TC2_37 freight rates from May 30 to August 29, 2017

Trans-Atlantic clean freight rates had previously been holding steady in a low range of around Worldscale (WS) 105-115 throughout most of August prior to the Hurricane Harvey, which has caused major disruption to refining operations in the U.S. Gulf, home to around half of the country’s total refining capacity. U.S. gasoline prices have risen sharply as a result, amid reports of disruption to the Colonial pipeline system, which moves products from the U.S. Gulf to the Northeast.

Some notably strong tanker fixtures already concluded this week include Statoil fixing the Green Planet to move around 37,000 MT of gasoline to the U.S. East Coast from its refinery in Mongstad, Norway, at WS 215, and Repsol, which fixed the Challenge Pearl at the same rate out of Northern Spain. Both loaded around September 5 and 10 laycan dates.

Many of new shipments are thought to be on subjects, i.e. provisionally fixed, and will have a range of discharge destination options throughout both North and South America. Port-specific destinations are generally declared on departure, but these can, and often do, change en route.

Genscape observed and forecasted UKC flows of UMS to North America from May 26 to September 8, 2017

To date, some 918,000 KMT of gasoline has been chartered to move trans-Atlantic out of Europe for loading during the two weeks ending September 1 and September 8. Around 185,000 KMT is currently loading in European ports (as of August 30) and is expected to go Trans-Atlantic (based on fixture information). Another 310,845 MT of gasoline has already left Europe to go trans-Atlantic this week to destinations including New York and Tuxpan.

For comparison, recent weekly totals for trans-Atlantic gasoline exports to North and South America have recently been in a range broadly to either side of the 600 KMT mark, although did drop as low as 468 KMT in July.

Source: Genscape

Tanker Market: Excess tonnage supply hurting tanker owners

In Hellenic Shipping News 01/09/2017

Tanker owners left and right have been conceding this week, that it’s not demand, but an oversupply of ships, which have been hurting their earnings. According to Frontline, “the growth in crude tanker tonne-mile demand suggests that the current tanker market is not suffering from weak demand growth, but rather from excess supply growth which has occurred over the last 18 months. Despite current market weakness which is forecast to continue in the near-term, the Company continues to believe that the market will begin to improve in 2018 as the pace of deliveries of newbuilding vessels slows and vessels are retired from the global fleet. There are nearly 110 VLCCs built in 2000 or earlier that continue to operate. This is roughly equal to the current VLCC order book. At some point in time these older vessels will permanently exit the fleet. We believe that increased scrapping is inevitable in the near term, driven by the weak spot market and the increased scrap value of tankers, which is up by approximately 50 percent year on year”, Frontline noted.

In its market outlook, Cosco Shipping said that “in terms of oil shipping demand, the overall demand for global crude oil shipping maintains a stable uptrend during the first half of 2017. Asian Pacific countries such as China and India demonstrated a stable growth in crude oil imports. Factors such as reduced production by members of the Organization of Petroleum Exporting Countries (“OPEC”) and increased crude oil exports in USA have both contributed to the increment in global crude oil shipping distance. During the same period, global shipping demand of finished oil also increased with sustained growth, mainly due to the strong import demand in Latin America and Asia, yet the increment is slightly slower than the corresponding period of last year”, Cosco Shipping said.

The Chinese conglomerate added that “in terms of the supply of shipping capacity, according to the latest information released by a research institute, shipping capacities of various types of tankers followed last year ’s trend and continued to expand during the first half of 2017, except for the Panamax, reflecting the pace of new vessels commencing operation is still ahead of vessel scrapping. In terms of shipping price, the fast growth of foreign oil trade shipping capacities in the first half of 2017 led to a general decrease in shipping prices of various types of vessels as compared to the corresponding period of last year.

According to the market benchmark, World Scale (“WS”) average index of very large crude carrier (“VLCC”) for the Middle East/ Japan shipping route is 63, representing a decrease of approximately 25% as compared to the corresponding period of last year (after including a basic fee discount, same for the statistics below). Shipping prices of other small to medium crude oil vessels also decreased (at different rates) as compared to the corresponding period of last year. The finished oil market also demonstrated weak performance, WS points of finished oil LR2 and LR1 vessels dropped approximately 20% as compared to the corresponding period of last year”, the ship owner concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

Moore Stephens: Shipping must beware exposure to changing risk landscape

In International Shipping News 01/09/2017

Our third annual Shipping Risk Survey confirms that the effective management of risk within the industry has improved slightly over the past 12 months. But shipping still needs to up its game in terms of managing its exposure to risk, which is increasing and changing in nature, not least in terms of the threat posed by cyber security.

Respondents to the survey rated the extent to which enterprise and business risk management is contributing to the success of their organisation at an average 6.8 out of a possible score of 10.0, compared to 6.6 last time. Charterers returned the highest rating (8.8) in this regard, followed by owners (6.9) and ship managers (6.8). Brokers returned the lowest rating at 6.3. Geographically, Europe (7.0) was ahead of Asia (6.6), but it was the Middle East which returned the highest figure, at 7.8.

Overall, respondents rated the extent to which enterprise and business risk was being managed effectively by their organisations at 7.1 out of 10.0, up from the rating of 7.0 recorded last time and indeed in the inaugural survey in August 2015. Charterers (8.8) expressed the highest level of confidence in this regard, followed by owners (7.3) and managers (6.9). In the previous survey, charterers recorded the lowest rating (6.5) of the main respondent types.

Demand trends were deemed by the greatest number of respondents to pose the highest level of risk, closely followed by competition and the cost and availability of finance. Demand trends were thought to pose the highest level of risk for owners, charterers and brokers, while for managers it was competition that topped the list.

Geographically, demand trends were the number one concern in Europe, Asia and the Middle East, while respondents in Latin America and North America identified competition as posing the highest level of risk.

Respondents to the survey felt that the level of risk posed by most of the factors which impacted their business would remain largely unchanged over the next 12 months, with the exception of ballast water management legislation, cyber security, geopolitics, operating costs and other changes to laws and regulations, which were all perceived to have the potential for increased risk.

Overall, 69% of respondents (unchanged from last time) felt that the senior managers in their organisations had a high degree of involvement in enterprise and business risk management. Meanwhile, 22% (up from 20% previously) said that senior management’s involvement was limited to “periodic interest if risks materialise”, while 7% (down from 10% last time) noted that senior management “acknowledged but had a limited involvement in” enterprise / risk management. Just 2% (marginally up on the 2016 figure) said that senior management had no involvement whatsoever.

Overall, 30% of respondents (compared to 35 % in the previous survey) confirmed that such risk was managed by means of discussion without formal documentation, while 45% noted that risk was documented by the use of spreadsheets or written reports, compared to 41% previously. Internally developed software was employed by 10% of respondents (17% last time) to manage and document risk, while 14% used third-party software, as opposed to just 5% at the time of the previous survey.

On a scale of 1.0 to 10.0, estimates of claims and provisions (up from 4.2 to 4.3) were deemed the factor most likely to result in a material misstatement in companies’ period-end financial statements. Next came impairment involving vessels in use (up from 4.0 to 4.1), changes to legislation (down from 4.2 to 4.1), and reliance on spreadsheets for financial reporting (up from 4.0 to 4.1). Loan covenant non-compliance, meanwhile, was up from 3.8 to 4.0.

A stand-alone survey question addressed only to publicly traded companies revealed that 80% of such organisations had a dedicated audit committee in place. Respondents in two-thirds of those companies, meanwhile, confirmed that their audit committees met on a quarterly basis to discuss risks, while 22% reported that such meetings were held annually.

Michael Simms, Partner, comments: “Embedding proper and effective risk management controls into daily operating procedures is a huge challenge for companies in the shipping sector, where high risk levels are an accepted and fundamental part of the industry. This is particularly the case, as is now, when the industry is ultra-competitive and grappling with an imbalance in tonnage supply and demand, and when wider global economic conditions remain extremely tough.

“In such a scenario, it may be tempting for companies to take their eye off their exposure to risk in pursuit of retaining or securing new business. And although the survey suggests that is not the case, it also reveals that the standard of risk awareness and response capability in many shipping companies is below the required levels.

“The good news is that there is greater acknowledgement that sound enterprise and business risk management is contributing to the success of those shipping organisations which responded to our survey. More companies are now formally documenting the way in which such risk is managed, with a healthy level of involvement by senior management. Moreover, there has been a noticeable increase in the deployment of third-party software to manage exposure to risk.

“But the survey results show that there is still room for improvement. There remains a need for companies engaged in the shipping industry to up their game in terms of implementing effective corporate governance systems, monitoring procedures and controls throughout their organisations, because the level of risk is not only increasing but also changing in nature.

“The factors identified by respondents to the survey as being most likely to result in a material misstatement in their accounts were unsurprising – particularly claims estimates and impairment. The same is true of factors posing an increased level of risk to business over the next 12 months, including operating costs, ballast water management legislation, and cyber security.

“There is nothing new about the challenge posed by operating costs, which are as old as shipping itself. Such costs may have fallen over the past four recorded years, but it is unlikely that this will continue, particularly given the need to meet increasingly onerous legislative and regulatory demands, and continually escalating crew costs. But the need to invest heavily in measures to preserve the environment, and to protect against the threat of cyber-attack, are more recent developments which change the risk landscape for the shipping industry.

Shipping Risk Survey 2017 [PDF]

Source: Moore Stephens

Oil Traders Grab Gasoline Ships to Replenish Harvey-Hit U.S.

In International Shipping News 01/09/2017

Oil traders are rushing to book tankers to haul European gasoline across the Atlantic Ocean as Hurricane Harvey transforms the global market for refined fuels.

Traders booked 20 tankers to load European fuels to the U.S. since Harvey made landfall on Aug. 26, according to charter lists compiled by Bloomberg. The rate of bookings is about double the average for August. Most cargoes are 37,000 metric tons each. Shipbrokers said flows to New York will be the highest since November, when a pipeline blast curbed inflows from the Gulf of Mexico.

Harvey, now a tropical storm, has brought torrential rain and the collapse of levees, dams and drains. It’s also knocked out almost a quarter of U.S. refining capacity, of which more than half is in the Gulf of Mexico region. That in turn has lowered domestic crude prices, since fewer plants are able to process it, while simultaneously restricting the supplies of fuel like gasoline and diesel.

“It will take several weeks before the whole refining capacity is restored,” said Ehsan Ul-Haq, a London-based director of crude oil and refined products at Resource Economist Ltd. “As a result, increased gasoline flows from Europe to the U.S. will continue at least for three to four weeks.”

Many of the tankers booked for cross-Atlantic voyages have multiple options for where to take their cargoes. That means that some could also head to Mexico, which is competing with the U.S. for resupply because of fuel shortages of its own.

A survey of shipbrokers showed they anticipated 30 cargoes being booked to load over the next two weeks. The last time shipments were higher was in early November last year, after an explosion and fire curbed flows through the Colonial pipeline to Greensboro, N.C., from the Gulf Coast.

European gasoline cracks, a guide of profit for refiners processing the fuel, have surged to a two-year high, according to data from PVM Oil Associates Ltd. On a seasonal basis, they’re the highest ever. A barrel of the fuel costs $18.27 more than crude, a record for the time of year. That’s at a time when the outright price of crude itself is still trading at less than half of where it was in mid-2014.

Gasoline futures in New York extended gains on Thursday in their longest rallying streak since 2013, with prices at $1.97 a gallon at 9:15 a.m. in London, the highest since July 2015.

With estimated costs of the disaster rising each day and the full extent of damage to refineries in the Gulf of Mexico still unclear, the shipments may continue for weeks to come. Plants handling 4.25 million barrels a day of crude were halted by Harvey, data compiled by Bloomberg show. The nation can process about 18.6 million barrels a day, of which about 9.7 million barrels a day is in the region including Houston.

“With sharply rising flows from Europe to the U.S. Gulf, we’re also seeing a massive spike in crack spreads,” Carsten Fritsch, an analyst at Commerzbank AG, said by phone of the European gasoline market. “It depends on how long the refinery closures will remain in place. As long as this is the case flows will continue and crack spreads look well supported.”

Diesel Boost

It’s not just European gasoline markets that have risen since Harvey hit, gasoil markets are strengthening sharply too as the region depends on Gulf of Mexico refineries for imports. In a market that was already showing signs of tighter supply thanks to major disruption at Pernis in Rotterdam, Europe’s largest refinery, the severe restriction of flows from the U.S. is also providing support. Contracts for October delivery are now $6 a ton more expensive than those for November, a market condition that indicates concerns over supply.

“For gasoil we had the disruption from Pernis and now with the storm we’re likely to see limited gasoil flows to Europe,” said Warren Patterson, a commodity strategist at ING Bank NV. “We could see Europe looking more towards Asia to meet any shortfall from the U.S.”

Goldman Sachs Group Inc., PVM Oil Associates and JBC Energy GmbH were among the oil market watchers to say that European refiners are set to benefit from the supply outages cause by Harvey. Outages in the U.S. will lead to “windfall profits” for European refiners as gaps demand gaps are filled, JBC said.

Source: Bloomberg

U.S. halts LPG shipments to Asia amid storm havoc; buyers hold back

In Freight News 01/09/2017

Shipments of liquefied petroleum gas (LPG) from the United States have been held up by the havoc wrought by tropical storm Harvey since last Friday, but Asian buyers are betting the situation will improve before supplies are critically squeezed.

At least 300,000 tonnes in LPG shipments to Asia have been delayed after U.S. Gulf ports were shut, based on the estimates from four sources who buy mainly U.S. cargoes.

Asia is short of LPG, which in the form of butane or propane is used for transportation, heating, cooking and petrochemical production. Based on IHS Markit data, Asia imported close to 53 million tonnes of LPG in 2016, with about 66 percent coming from the Middle East and 22 percent from the United States.

Prices reacted swiftly to the U.S. delays, with Saudi Aramco on Aug. 28 setting its September contract prices for propane at $480 a tonne and butane at $500 a tonne. These were up $40 to $60 a tonne from July and also Saudi Aramco’s highest monthly prices since March. BUT-OFFCL-SA PRO-OFFCL-SA

“Middle Eastern players should at the very least be able to sell some additional volumes from stock in the current environment and cash in on the rising price,” said JBC analyst Michael Dei-Michei.

Still, this being an off-peak season for LPG in the heating sector has helped to mitigate the impact, said a North Asian buyer of U.S. cargoes.

“There have been delays in shipments (but) it’s summer now. We do not foresee any worries over inventory shortages,” he said.

Japan, South Korea and China are Asia’s top consumers of LPG. Major buyers include Japan’s Astomos Energy, South Korea’s SK Gas and China’s Oriental Energy.

Another buyer of U.S. cargoes said September inventories were comfortable for now, but that the situation could change.

“There are already some 15 carriers including Very Large Gas Carriers (VLGCs) being delayed. If this drags, more ships would be delayed and it could affect October inventories,” the second buyer said.

As of Wednesday, the upper Houston ship channel from Morgan’s Point inbound to the turning basin remained closed although the smallest draft tankers would be allowed to travel to Texas City.

“If U.S. cargoes are (further) delayed or cancelled … (buyers) can turn to the Middle East or West Africa, but I don’t think the volumes will be enough,” said a Singapore-based trader.

Source: Reuters

1 in 3 experts blames Hanjin Shipping’s fall on govt.: poll

In International Shipping News 31/08/2017

One in 3 South Korean maritime experts blame the government for the bankruptcy of Hanjin Shipping Co., once the nation’s leading shipping company, a poll showed Wednesday.

Hanjin Shipping, previously the world’s seventh-largest shipper, was put under court protection in September last year as its creditors refused to save the failing company before being declared bankrupt in February.

According to the survey of 36 corporate executives, scholars, government officials and journalists, 37 percent of the respondents said Hanjin Shipping’s failure was caused by the government’s lack of awareness of the shipping industry’s importance, and its will to revive the ailing firm.

Another 13 percent cited “political reasons,” while nearly 46 percent pointed the finger at the incompetence of company management and major shareholders.

Lee Hwan-ku, vice president of Heung-A Shipping Co., unveiled the findings during a seminar held at the National Assembly building in Seoul to mark the first anniversary of Hanjin Shipping’s insolvency.

Concerning the future of the local shipping industry, 83 percent of those surveyed replied that industry leader Hyundai Merchant Marine Co. should merge with SM Line Corp., a midsized shipper, to compete with global behemoths. SM Line is a unit of SM Group, which owns South Korea’s No. 2 bulk carrier Korea Line Corp.

Last year, some experts broached the idea of merging embattled Hanjin Shipping with Hyundai Merchant Marine, then the nation’s No. 2 shipper amid concerns Hanjin’s failure would result in the loss of its ships, terminals and global networks, but the government dismissed it.

Slightly over 30 percent of the respondents cited the insufficient policy response of the nation’s maritime and financial authorities as the main reason for the failed merger of the two industry titans.

Hanjin Shipping, established in 1977, and local shippers had been in severe financial strain because of falling freight rates stemming from an oversupply of ships and a protracted slump in the world economy.

The company’s collapse has stoked fears that South Korea, once a shipping powerhouse, could lapse into a minnow on the global stage unless concerted efforts are made to boost its competitiveness.

Source: Yonhap