Asia/Pacific News
Low Bunker Prices Keep Asian VLCC Earnings Strong Despite Tumbling Rates
While very large crude carrier (VLCC) worldscale rates for Persian Gulf to East routes are expected to continue their two week long fall alongside dwindling Asian demand, vessel owners have been able to maintain robust daily earnings thanks to low bunker fuel prices, Reuters reports.
An eight consecutive day fall of the key Persian Gulf to Japan Worldscale rate for VLCCs ended with a rate last Friday of w56, a drop from a year-to-date high of w88.5 on July 21.
Meanwhile, daily earnings reportedly slipped to about $53,000 from about $85,000 over the same period last year, a fall that market participants called "still quite healthy," compared to the early June 2014 downturn where earnings fell lower than $3,000.
"Surplus availability of ships is dragging down the rates as tonnage requirement from cargoes isn't large enough," said one source from a Japanese refiner.
A Singapore-based VLCC broker credited the current downturn in rates to lower refinery margins in Asia, weak demand, and uncertainty of Chinese requirements.
However, VLCC owners have reportedly been able to maintain "decent" daily returns despite current worldscale rates, as lower crude prices have likewise affected fuel oil and bunker prices.
"Earnings are good due to cheaper bunker, which usually constitute about 50-60 percent of the total costs of a voyage, though they will vary with the speed of ships and destination of discharge," a VLCC owner was quoted as saying.
With a lower rate of w55 on the Persian Gulf to South Korea route, brokers have asserted that earnings of almost $53,000 per day are still attainable, adding that daily earnings would be almost zero if bunker prices were in the $600-$650 per metric tonne (pmt) range that they were for much of the earlier part of last year.
Market participants also noted that with fuel prices down, shipowners were more accepting of lower rates, preferring low rates over sitting idle among excess supply.
In July, EA Gibson Shipbrokers (Gibson) predicted that construction of new tankers this year is set to break the record set in 2013, noting that for most size groups the tanker orderbook has now reached the highest level since 2011-12, with VLCCs at 18 percent to their current size.
