The cost of booking a VLCC sailing out of the US Gulf Coast has tanked more than 40% since October 14, when freight reached a peak of $21 million for ships discharging in China, reports Platts.
USGC-China route
S&P Global Platts assessed the VLCC 270,000 mt USGC-China route at $12.5 million, as market indications continued to reflect a deal done at that level.
The freight rate was unchanged day on day, but $8.5 million lower than the high reached Monday.
Despite the large drop in rates over the past week, freight remains above the lump sum $9.5 million seen September 27, which at that point was the highest mark since Platts began assessing the USGC-China route in March 2018.
Charterers stay on sidelines
- The drop in rates over the past week comes as charterers held off from entering the market and select oil companies pushed relet ships into play.
- Shipowners separately made plans to defer scrubber installations in the hope of taking advantage of higher rates.
“Charterers are sitting back trying to cool the market off,” a shipowner said.
The two deals
The USGC VLCC market looked toward two deals done, where ExxonMobil and Trafigura both booked BP relets, the KHK Empress and the Ascona, respectively, for USGC-East Asia runs, the first VLCC fixtures inked for shipments from the USGC region since October 10.
ExxonMobil paid lump sum $11.5 million basis USGC-Singapore for a November 25-30 laycan shortly after Trafigura booked the Ascona with an owner’s option for the Universal Winner for a USGC-China run at $12.9 million.
Freight for a Singapore discharge is currently holding at a $1 million discount to a run to China.
Dropped bookings
The initial pullback in rates which came globally was the result of a flurry of bookings being dropped in key VLCC markets that were done at levels of Worldscale 200 and above.
The decline in rates for VLCCs is “coming from weakness in the Arab Gulf and West Africa where charterers are failing ships on subjects to get better rates,” a shipbroker said.
Support from 2020 regulation factor
The cost of taking a VLCC on the 260,000 mt Brazil-China voyage reached a peak of w290 on October 11, since when it has dropped 62% to last be assessed Friday at w110.
The VLCC market has seen support from a number of geopolitical and pre-IMO 2020 sulfur regulation factors, marginalizing about 15% of the total global VLCC fleet, S&P Global Platts Analytics data shows.
Dropping off COSCO affiliated ships
The most recent rally, which bolstered rates to unprecedented levels, was prompted by US sanctions on two affiliates of COSCO Shipping Co., not only rendering about 5% of the global VLCC fleet undesirable, but also leaving charterers scrambling to cover cargoes after dropping COSCO-affiliated ships.
Looking ahead
The Forward Freight Agreement market is reflecting the most recent weakness in the spot market, with the November contract for the 270,000 mt VLCC USGC-China route last trading Thursday at $42.5926/mt, or a lump-sum equivalent of $11.5 million. A week earlier, the November contract traded as high as $55.5556/mt, or $15 million.
Sources expect rates to continue to move lower in the coming week, with one broker expecting the next level to go through for the VLCC 270,000 mt USGC-China route to be below $11 million.
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Source: Platts
