Easing bunker prices unlikely to support weak chemical tanker market: brokers
Easing bunker prices may help to keep vessel operating costs down, but weak freight rates in a chemical tanker market with more space than cargoes to fill it, is capping profitability, ship brokers told Platts.
Singapore bunker prices are down 11.1% from April, tracking continuing weakness in crude contracts. The benchmark Singapore 380 CST grade was assessed at $653.50/mt on Monday, down from $735/mt at the start of April.
Ship brokers estimate that bunker cost can erode 30-60% of the voyage revenue, depending on the vessel's speed, cargo, engine "and lots of other factors."
"Essentially, bunker costs should erode around 30% of voyage earnings. Recently, that was up to 50%," said a ship broker, but he added that it should abate to around 40%.
Ship brokers say vessel owners may only see the benefit of lower bunker prices in a month's time, as there is a lag between the purchase and when the bunker is actually used.
However, charterers are likely to push freights even lower then, given the current market situation where there is more space than cargo available.
According to latest ship broker reports, freight rates for vessels loading in South Korea, Singapore, and the Middle East are expected to moderate in the coming month, with vessel space available in Northeast Asia up till June.
One segment already seeing pressure are vessels that move palm cargoes.
"I can see palm oil charters making a big push downwards. The difference may not seem large because existing rates were already pretty low, but they are moving slightly lower," said a ship broker based in Singapore who estimated that Straits to West Coast India freight for a 12,000-15,000 mt palm oil cargo would be around $33-34/mt in recent months.
"Now, charterers are pushing for $30-31/mt," he said.
VESSELS CALLING ON IRAN ARE THE EXCEPTION
One sector that has escaped weak chemical tanker freight levels is vessels that call on Iran. Tighter supply due to a ramp-up of sanctions against the country has boosted freight levels. With effect from May 1, European Union-based insurers are not allowed to provide insurance cover for Iranian chemical tankers bound for non-EU countries.
Shipowners willing to load petrochemical cargoes from Iran and discharge in India were heard asking FOR freight rates of $100-120/mt, up from around $40/mt in April, market sources told Platts earlier.
This rate is now three times above the $40/mt rate heard at the end of April, and around five times higher than the $25-29/mt rate prior to the sanctions, which took effect May 1.
Meanwhile, Chinese shipowners who are willing to load cargoes from Iran and discharge in China, have hiked freight rates to more than $100/mt, compared with $70-75/mt in late April, market sources told Platts earlier.
Before the sanctions were imposed, the cost of moving methanol from Iran to China was around $45-55/mt.
However, a ship broker noted that this enhanced freight situation is likely to remain an exception, rather than the rule, in the current market.
"Iran pricing is purely supply and demand. If others could call the rates would be much, much lower. And when others start calling the rates will stabilize," he said.