SSY Base Oil Shipping Report

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European markets have been more encouraging over the past week with more enquiries seen. The long Ascension Day weekend however is looming and may deflate further progress. Elsewhere, the oversupply of tonnage continues in Asia, India and the Middle East Gulf, while the United States is essentially snug on space. Overall, freights have not changed substantially from last week.

U.S. Gulf of Mexico
Demand/supply of vessel space is balanced to tight, depending upon the route. Tightness is noted on U.S. Gulf-to-Asia and U.S. Gulf-to-Europe routes, whereas trades from the U.S. Gulf to the Caribbean and from the U.S. Gulf to the east coast of South America are more relaxed, and the possibility to work part-cargoes can exist.

We feel that a 1,500 ton parcel of base oils could be worked from the U.S. Gulf to the east coast of Mexico for around $35 per ton. A 5,000 t parcel of base oils from Houston to northern Brazil would cost around $43/t.

There are not so many candidates open in the U.S. Gulf for unscheduled destinations such as Nigeria, and a prompt loading would necessitate ballasting a ship into the U.S. Gulf from the Caribbean or even West Africa.

Space is essentially full until mid June from the U.S. Gulf to Asia, and we see several companies trying their best to find space for base oils on this leg. A rate in the mid-to-high $80s/t should work in principle for a 5,000 t cargo from the U.S. Gulf to a scheduled principal port in China, subject to timing.

Eastbound transatlantic is fairly firm with freight for 5,000 t cargoes from the U.S. Gulf to Antwerp-Rotterdam-Amsterdam rising by some $4 to $5/t. Depending upon loading port, a parcel of base oils would cost from $48 to $55/t.

Europe
European coastal markets have generally been busier. Good indicators are barometer cargoes, i.e. those cargoes that are moved regularly. Freights for such movements are either up, down or stable, depending upon vessel tightness. Presently, we see several such barometer cargoes paying slightly more than usual.

One of the reasons for this may be that contractual volumes have picked up, meaning less space available for the spot market. Indeed, we see several cargoes from Northwest Europe to the Mediterranean that should be taken under contracts but which have needed to resort to the spot market instead. We also notice fewer prompt open positions in Europe. If the market comes through the Ascension Day holiday without too much interruption then freights could slowly begin to firm.

Deep-sea markets from Europe are mixed. Transatlantic is essentially quiet, and we could envisage 3,000 t of base oils from Rotterdam to Houston paying $45/t for example. Europe-to-Asia is tight, however, and that same 3,000 t cargo could cost well in excess of $100/t if shipped from Rotterdam to Korea, for example.

Another active market is that into India and the Middle East Gulf, where there is pressure from charterers wanting to ship acids, pyrolysis gasoline, aromatics and vegetable oils. In some cases, we have seen ships ballast from India back into the Mediterranean to reload a cargo for India again. The round trip is probably loss-making, but at least provides a way of earning revenue that has to be better than sitting idle off India.

Asia
For many ship owners it is a sad fact of life that they have tonnage open in Asia with no prospect of finding employment. Some may find solace fixing palm oil cargoes, but many of the ships open in Asia have unsuitable last cargoes to load edible oils to Europe.

There has been much talk of benzene to ship from Korea to Europe with freights paying around $40/t for 15,000 to 20,000 t cargoes, but not many confirmed fixtures so far.

For many owners, the preferred option will be to take palm oils to India in the low $20s/t for 8,000 to 10,000 t lots and then try to find something from there. There are signs too that palm oils to China are starting to become busier, so some ships may end up staying in Asia.

For those wishing to send base oils overseas from Asia, there are a great many opportunities, even to destinations that would not normally be considered, such as West Africa, the Caribbean and South America.

Notes on Shipbuilding
It is hardly surprising that the shipbuilding industry is taking a lot of knocks when it comes to further orders for vessels in the future, but such is the scale of the problem that it helps to throw out some statistics to illustrate the point.

In a recent study, Norwegian classification society Det Norske Veritas said that nearly 500 orders for new ships have now been cancelled. Worst hit have been the South Korean shipyards, followed by those in China. In numbers of vessels, this works out at just under 200 ships cancelled in South Korea, or some 19.2m dwt, and just over 160 ships, or 12.9m dwt from China.

The global order book for all kinds of vessels still stands at over 10,350 new ships, so remains immense. Tankers, and especially chemical tankers, are just a small proportion of the total cancellations, but it highlights a potential problem in which shipyards themselves face an uncertain future.

Hyundai Heavy Industries of South Korea for example revealed an order total of $1.9 million for the first three months of 2009, down 83 percent year-on-year and less than 10 percent of the annual target of $21.1 billion that it had set itself at the beginning of 2009. All these shipbuilders are facing common problems about cash flow and how best to deal with it, whether asking for government assistance or issuing new bonds.

Even if no new ships are required for the next few years, the yards themselves need to find ways to survive or where else will the next generation of ships come from?

Adrian Brown is senior market analyst for chemicals and base oils with SSY Shipbrokers, London. Information about SSY can be found at www.ssyonline.com. Adrian Brown, in the U.K., can be reached directly at research@ssy.co.uk or by phone at +44 1207-507507. In the U.S., SSYs Steve Rosenthal can be reached at fix@ssychems.com or +1 203-961-1566.

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