Chinese demand driving tanker markets forward

Oil demand from Asia and especially China has intensified over the past couple of months and especially during the end of October, providing solid ground for gains across most of the large crude oil tanker Eastbound routes. As such, the Far East oil demand has provided the foundation for a strong boost in freight rates for several routes, like the TCE for MEG/Japan, which almost doubled at the start of November, reaching levels of $42,000/day.

Similarly, the  WAF/F.East route gained by around 40% in just one day, touching the very lucrative level of USD 98,939/day. "It’s no wonder that we had media frenzy on the matter, with all of them quick to call on this accelerated demand as the corner stone of a full on recovery of the market", said Mr. George Lazaridis, Research Analyst of shipbroker Intermodal. According to Lazaridis, "for one, the new found hope on Chinese demand might end up being very short-lived, as we already have many noting that although imports are on the rise internal demand seems to have dropped compared to a year earlier. This means that most of the current imports have been potential for the purpose of re-stocking. This point may be even taken further as some propose possible build-up of commercial inventories ahead of the commissioning of some of the most recent refinery units. This may well be more cause for worries then you would think, as the most recent imports are for the use for China’s expansionary petroleum exports plan which once put into play may well cause crude oil shipments to drop to other refinery destinations some of which may lay further away from China and as such bring about a drop in overall market tonne-mile demand", Lazaridis noted.

He added that "the second and most important point is that, even in the case that this new crude oil import growth is based on expectations of high per capita consumption increase of China itself, the potential gain is still caped as the requirements to supply crude from the MEG is minimal as it lies fairly close in nautical mile terms. Demand for crude sourced from WAF could provide a higher market upswing potential, although with the level of tonnage oversupply left after the wake of lacking demand from the Western economies, might require significantly more STEMS per calendar month in order to keep the current active fleet fully busy."

The good news is that that may well be what is on the horizon for the tanker industry. Lazaridis stated that "Chinese oil consumption is set prime for a major increase over the next couple of years. With the average income still rising fast and more people moving to major cities, transportation has become a key ingredient to keeping its growing megalopolises interconnected and economically thriving. These massive populations take a whole lot of oil to move around and as their disposable income rises, so does their fuel consumption.
We have seen Chinese oil imports more than double over the past decade and this rate is ever more likely to continue over the upcoming years and possibly at an even faster pace. One only needs to look at what happened in the development process of other Far Eastern economies in the past and you can pretty much be certain that oil will be what fuels the next step in China’s economic development. Let’s hope it’s enough to slowly bring a balance in the tanker industry and cover much of this excess tonnage supply that has amassed the past couple of years. Way may be far from seeing lucrative rates of return on investments, however it seems that way may well find ourselves out of the “muck” we have seen over the past 24 months or so", he said.

He concluded his analysis by mentioning that "the VL’s were the first to show the major gains from the seasonal spike in demand, with interest from the Far East clearing much of the excess tonnage and leaving prime conditions for even a profitable spike in freight rates. Despite similar not having spilled over completely to the Suez and Afras there have been notable gains there two and with the new wave of fresh inquiries rapidly pouring in, November could end up being the “hottest” month yet.
Suez and Afras also showed a bit of difficulty in the first weeks of the month especially in the Black Sea/Med region, although this seems to have reversed fairly quickly and earning seems to have now returned back to normal.

In the products tanker sector things took a turn for the worst, as the decrease in enquiries left a number of the major routes with considerably increased position lists, while many owners look to reposition there vessels elsewhere and at a considerable discount in an effort to reach better returns".

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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