Slow product exports from S Korea, vessel oversupply dampen North Asia MR rates
North Asian Medium Range tanker rates are near the lowest levels for 2016 due to a fall in South Korean oil product exports, excess vessel supply and limited spot voyages to Japan, shipowners and shipbrokers said.
The key South Korea-Singapore and South Korea-Japan lumpsum MR rates were at their lowest levels for 2016 last week, assessed at $260,000 and $240,000, respectively, on November 14 and remaining unchanged at the same level till November 23, S&P Global Platts data showed.
The weakness was also reflected in the narrowing spread between the two rates. The spread ranged at $15,000-$20,000 for most of this month compared with $50,000-70,000 in March, data showed.
The supply of ships is more compared with the number of cargoes, said a source with an MR owner.
“Apart from the usual cargo movement on these routes, there is no additional or incremental demand,” the source said.
More ships have repositioned themselves in Asia due to poor earnings in the West, the source said.
Worldscale rates for MRs on the UK Continent-US Atlantic Coast routes had slumped to their lowest levels for 2016 at w70 during September 13-16 and October 3-7 period, Platts data showed.
“The North Asian market has weakened since China’s week-long holiday in early October and hasn’t picked up yet,” said a broker in Singapore.
South Korea’s oil product exports have also been on a decline for the last three months now, according to data from Korea National Oil Corp.
They declined 1% year on year in October, while in September they edged down 0.5% year on year. In August, South Korean exports fell 10% year on year, KNOC data showed.
South Korea is a key source of oil products in the region due to its storage and refining facilities. As a result, the South Korea-Japan and South Korea-Singapore routes typically see large volumes of distillate cargoes being moved in MR tankers, which can carry upto 40,000 mt of product.
However, shipping industry officials pointed out that now with China turning into a net exporter of oil products, the trading pattern had changed and more clean MRs were deployed at Chinese ports to load or discharge cargoes.
China exported more than 38 million mt of oil products over January-October, up 37% from the same period last year, according to customs data.
Newbuilds entering the global fleet hasn’t helped matters either.
“There is just too much tonnage in the market,” said a clean oil tankers broker in Tokyo.
The orderbook for MRs is equivalent to around 10% of the global fleet of nearly 1,600 MR tankers. More than 100 ships in the category have been either delivered or were scheduled to be delivered this year.
Charterers were spacing out their cargoes and allowing the tonnage to build up, said a broker in Singapore.
“Once this happens, they are able to find owners who are willing to offer their ships at lower rates,” the broker said.
Nevertheless, the narrow spread between South Korea-Japan and South Korea-Singapore rates haven’t translated into more cargoes being moved to Singapore, sources said.
“Freight is only a small element and whether middle distillates get shipped to Singapore in larger volumes will still depend on cargo pricing and storage availability which is the bulk of the cost,” one of brokers doing shipping fixtures on this route said.
Increasing competition among exporting countries such as South Korea, India and China implies that product prices will play a more crucial role in shipments.
Due to increase in refinery run rates amid cheaper crude, China itself is flushed with oil products and looking for export destinations.
“The narrowing freight gap doesn’t make a difference and [only] the cargo that needs to come south will continue to do so,” another broker said.
Owners have now pinned their hopes on upcoming winter demand for kerosene in Japan, and their sentiments were supported as Tokyo saw its first November snow in over five decades.
“There are some [kerosene] cargoes for end-November and early December loading,” said a broker in South Kora. “Several ships have been placed on subjects but there is not much movement on rates,” another broker in Seoul said.
This is because there are several cargoes being taken on ships that are under contracts of affreightment for multiple back-to-back voyages.
As a result, the charterers don’t have to tap the spot market for ships.
Also, the kerosene movement from South Korea to Japan is mainly done on Small Range tankers in 10,000-20,000 mt parcels.
On an average around five to 10 MR distillate cargoes are moved every month on the South Korea-Japan route by Japanese charterers and Saudi Arabia’s ATC, and incremental demand will be required to shore up the rates, sources said.