Signs of Recovery Seen in Asian MR Market
A new lease of life has been breathed into the ailing Medium Range (MR) tanker market in Asia. The MR market has been mired in a slump in recent months, with TC11 rates sinking to a multi-year low of $240,000 in April on the back of lower product exports from China and South Korea. The lumpsum rate for TC11 has since rebounded by $50,000 to $290,000 due an influx of activity in North Asia.
Overall Chinese product exports touched a three-month low at 3.5 mmt in April, down by 22.6 percent m-o-m and 4.9 percent y-o-y which contributed significantly to the previous decline in MR rates. Diesel accounted for 1.2 mmt (down by 35.6 percent m-o-m) while gasoline accounted for 0.91 mmt (up by 8.3 percent m-o-m). The m-o-m drop in April exports was largely due to heavy turnarounds at state-owned refineries as well as lower product export quotas released by the government. On an anecdotal basis, some refiners were unable to export products as they almost ran out of quotas. The recent release of a new batch of fuel export quotas under the general trade scheme has coincided with a flurry of third decade May loading cargoes which propelled MR rates to current levels. The third batch of quotas issued this year accounted for 6.29 mmt, which is 35.7 percent higher than the previous batch. As the new export quotas become functional and peak refinery maintenance comes to an end, we expect to see a m-o-m increase in total exports for May and June.
This may help to put a floor under MR rates in Asia.
Similarly, total product exports from South Korea hit a five-month low at 1.27 mmb/d in April, down by 13.4 percent m-o-m and 9.3 percent y-o-y. The drop in gasoil and jet fuel exports largely accounted for the m-o-m decline. South Korea’s gasoil exports plunged by 18.5 percent m-o-m to 437 kb/d while jet fuel exports were down by 10.7 percent m-om to 294.3 kb/d. One key factor behind the fall in exports is weaker demand from Australia after Cyclone Debbie caused severe damage in coal mines in Queensland. Australia is a key diesel importer in Asia, with the fuel used to power coal mines as well as a large share of vehicles. Australia accounted for around 35 percent of South Korea’s gasoil exports over Q1. As the operations at coal mines resume, we expect exports to Australia to recover over May and June.
The upcoming Ramadan season may provide a short-term boost to the Asian MR market due to seasonally higher Indonesian gasoline imports, which are typically shipped from neighboring Singapore. As reported by Platts, Indonesian gasoline imports in May were down by 11-19 percent m-o-m to around 6.8-7.5 mmb. We might see an uptick in June imports as Pertamina recently released 2H 2017 term tenders for 88 RON and 98 RON, which would lend support to the Asian MR market.
The Author
Rachel Yew is a Singapore based commodity and freight research analyst at Ocean Freight Exchange.
