Despite the firming of broader demand fundamentals short-term, the Suezmax sector still faces more wild cards that other sectors in the years ahead, considers Poten & Partners in a recent Market Opinion from their Commodity Consulting & Analytics department. Excerpts follow:
Last week, the Suezmax sector finally began to cash in on the freight rate gains exhibited by their larger VLCC cousins over the past two months.
Historically, these two markets have tended to move in tandem since both vessel sizes service West African export requirements. Because cargoes in West Africa are generally stemmed in one million barrel parcels, charterers can arbitrage the differential in freight rates by co-loading two cargoes on one VLCC instead of chartering two Suezmaxes.
As a result, strong VLCC rates have allowed for upward movements in Suezmax rates. While this current uptick in freight rates might merely be seasonally-lived, longer-term positives exist for this semi-slighted sector.
Two additional factors helping to drive the Suezmax market outside of the general correlation with VLCCs are the growth in exports from West Africa to the East and a potential balancing of the orderbook against possible demolition candidates aged 15 years or older that is likely to take place in the next few years.
Suezmax fleet excess unlikely
From a supply perspective, the best news for existing Suezmax owners is the small size of the orderbook relative to the number of vessels 15 years or older. The current orderbook amounts to a little more than 10% of the 440 ship fleet; however, 13% of the fleet is 15 years or older suggesting that there may be slight contraction in the fleet over the next several years.
The development of new trade patterns, particularly those with longer voyages, has led to unpredictable regional availability; bucking monthly and seasonal trends for supply and demand. At the end of the day it will be the moderation of tonnage supply will be the most important factor in supporting rates going forward.
Source: Poten & Partners