VLCC Rates to Stabilise as Owners' Resolve Stiffens

 

Freight rates for very large crude carriers (VLCCs) are likely to become steady around the current levels as owners resist charterers' attempts to pull down hire rates with the emergence of a three-tier market, brokers said on Friday.

 

That came as brokers said South Korean charterers GS Caltex/S-Oil failed to charter a VLCC at below 40 points on the Worldscale measure for a voyage from the Middle East to Korea as owners balk at hiring out their ships at a price equivalent to operating costs.

 

That is equivalent to earnings of around $8,000 per day compared with daily operating costs of $7,500 for a 300,000 deadweight tonne VLCC.

 

Brokers said the South Korean charterers were targeting owners of newly delivered ships or those whose vessels were newly repaired that needed immediate employment.

 

"GS Caltex/S-Oil are aiming at sub W40, but I think W40-41 is achievable," a Singapore-based VLCC broker said on Friday.

 

"Some owners are resisting but what charterers are holding on to is the healthy list of available tonnage," the broker added.

 

With so much tonnage available for charter, a three-tier market had opened up between newly delivered and repaired vessels, good quality modern vessels and older ships.

 

"Owners of modern vessels can probably charter their ships at around W50, while rates for older tonnage vessels are in the lower range of 40s," the broker added.

 

Brokers thought charter rates from the Middle East-to-Asia route would fluctuate in a 10-point range for the next two months.

 

"I don't see a recovery in the immediate future but I do see resistance from owners," said Ashok Sharma, managing director of ship broker BRS Baxi in Singapore.

 

Wider issues including moves by OPEC and non-OPEC members to extend curbs on crude oil output, the renewal of China's oil import quotas at the end of next month and a tanker-ordering spree that will see 100 new VLCCs delivered by 2019 all weighed on sentiment, brokers said.

 

Despite the fall in charter rates, current VLCC freight charges from the Middle East are still higher than the low point last year.

 

Freight futures forecast rates from the Middle East of W52 for July, W46.50 and W48.50 in September.

 

But that is below breakeven rates of W60, equivalent to a return of $22,000 a day, Sharma said.

 

VLCC rates on the Middle East-to-Japan route fell to W49.50 on Thursday from around W52.25 a week earlier.

 

"Rates have corrected down and tonnage starting to build up and charterers going slow for now. Tonnage also building up in U.S. Gulf and rates Americas/East likely to come under pressure as well," Norwegian ship broker Fearnley said in a note on Wednesday.

 

Rates on the West Africa-to-China route fell to about W52.50 on Thursday against W54.50 a week earlier.