Sulphur Rules Impact on Scrubber Uptake And Tanker Rates

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  • Post-IMO sulfur rules have seen volatile Hi5 spreads and varied scrubber uptake across tanker segments.
  • Large tankers have seen more scrubber installations, while smaller vessels show less uptake and varied economic benefits.
  • Current tanker rates show mixed trends, with softness in various markets and varying prospects for clean and dirty products.

Over four years since the International Maritime Organization (IMO) implemented its global sulfur regulations, mandating a 0.5% sulfur limit for bunker fuel. The transition has revealed significant market fluctuations and adaptations, reports Gibson.

Volatile Hi5 Spread

The Hi5 spread, the price difference between high sulfur fuel oil (HSFO) and compliant shallow sulfur fuel oil (VLSFO), has been notably volatile. Over the past four and a half years, it has ranged from a peak of $485/tonne to a low of $60/tonne. This volatility is driven by regional supply and demand factors, pandemic effects, fluctuations in oil prices, and changes in global HSFO flows, particularly in response to sanctions against Russia.

Scrubber Uptake Trends

Scrubber technology, designed to reduce sulfur emissions, has seen varied uptake across different tanker sizes:

  • VLCCs: As expected, very large crude carriers (VLCCs) lead in scrubber installations, with 51% of the existing fleet equipped. This is due to their high bunker consumption and long voyage distances. The average scrubber premium for VLCCs on the TD3C voyage has been around $6,750/day since January 2020, though it recently dropped to $5,000/day due to a decrease in the Hi5 spread.
  • Suezmaxes and Aframaxes/LR2s: The uptake is smaller but notable, with approximately 29% of Suezmax and 23% of Aframax/LR2 fleets equipped with scrubbers. The average eco scrubber premium for Suezmaxes on the TD20 voyage has been about $5,000/day, and for Aframaxes/LR2s on the TD19 route, around $4,250/day.
  • Smaller Tankers: Scrubber installation is less common among smaller tankers, with only 8% of LR1/Panamax, 17% of MRs, and 2% of Handysize tankers having the technology. The eco TCE premiums for these smaller sizes range from $2,750/day to $4,000/day, showing a less significant impact compared to larger vessels.

Overall, larger tankers that retrofitted with scrubbers in 2020/2021 have seen their investments pay off. For smaller tankers, the benefits are less clear and depend on installation timing, operational days, and trading patterns.

Current Market Conditions

  • AG VLCC Market: The market started weak with ample tonnage leading to lower rates. Currently, rates are around 270 AG/China WS46 and 280 AG/USG WS34.
  • AG Suezmax Market: Remains soft with few cargoes. Rates are assessed at 140,000mt x WS52.5 for TD23 and around WS95 for Eastern routes.
  • Eastern Aframaxes: Activity is minimal, but rates are steady due to limited tonnage, with AG/East at 80 x WS170.
  • West Africa: The VLCC market is inactive with rates around WS51 for WAF/China. Suezmax rates for TD20 have dropped to 130,000mt x WS77.5, with some resistance at these levels.
  • Mediterranean: The Aframax market in the Mediterranean has seen significant rate increases, with TD6 estimated at around 135,000mt x WS95. MR rates for Med/TA have fluctuated, currently around 37 x WS180.
  • US Gulf/Latin America: The VLCC market has struggled with lower rates, with USG/China runs expected at around $7.0m and Brazil/China at WS50.
  • North Sea: Aframax rates are stable at WS120, with some tonnage moving to the US and Med markets.

Clean Products

  • East: LR2 rates have seen a slight recovery with TC1 at WS150. LR1s and MRs show quieter trends, with TC5 at WS155 and TC17 around WS200.
  • Mediterranean: Handysize rates have declined to 30 x WS155, while MR rates for Med/TA are around 37 x WS180.
  • UK Continent: MR rates started strong but ended at around 37 x WS200 for TC2, with Handysize rates down to 30 x WS195.

Dirty Products

  • Handy: The North market is quiet with rates at WS230, while the Mediterranean rates are between WS240-245.
  • MR: The Med and UKC markets show softer trends, with MR rates around WS175-180 and rising to WS185 in the Med.
  • Panamax: A quiet week with softer levels in the USG and Caribs, as soft surrounding markets push rates down.

Overall, the shipping market remains dynamic with varied conditions across different vessel sizes and regions, reflecting ongoing adjustments to regulatory changes and market pressures.

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Source: Gibson