Uncertain tanker outlook in North Europe

Outlook for wet freight in North Europe remains uncertain. Both crude and products are off the heights. The latest rally began in November last year and lasted well into February. Since then suezmax and aframax freight has dipped and is unlikely to see a new rally for the time being. Product freight in the region is at best consolidating, but is likely to dip as spring approaches. Chemical freight from North Europe has seen a spectacular rise, but has now steadied at a fairly high level. Chemical operators fear it will not last. As we move into the second quarter of 2004, market fundamentals are beginning to influence the market. This is also the time of year when markets appear to lack direction. We also hear operator talking openly of fixing vessels for longer periods to take the sting out of a slump in freight.

The accelerated phase-out of tankers forced owners to redo their calculations, but the latest ordering spree has dampened the effect of an earlier phase-out. From a Northern European perspective there is more than enough suitable tonnage available to shippers in thisregion, right from the VLCC down to the handysize tanker.

Suezmax
Suezmax rates slipped in March, mainly due to weaker demand as Black Sea shipments were curtailed due to excess congestion in the Bosporus/Dardanelles. Higher demand from the reopened Ceyhan terminal for Iraqi crude will not take up the slack. Towards the end of February demand for suezmax tonnage in the North Sea and partly in the Baltic could not be covered, but thereafter the area was swamped by tonnage ballasting from the Mediterranean to the North Sea. The total suezmax fleet is now approaching 300 vessels of 45.0 million DWT and another 82 vessels of 13.1 million DWT, or nearly 30 per cent of the fleet, are on order. 60 per cent of the fleet is double-hulled and around 14 per cent is over 20 years old.

Aframax
North European freight for aframax tankers is well off the high in January. The fleet is now 10 per cent bigger than 18 months ago at 604 vessels aggregating 59.9 million DWT. Another 155 vessels of 16.7 million DWT, or 28 per cent of the current fleet is on order as of 1. March. In the past couple of years aframax freight rates in North Europe has been more volatile that during any earlier period. There is no ready explanation for this trend, which is likely to continue. However the current freight trend is similar to the one seen this time last year.

Product
There is still good demand for quality clean product tonnage in North Europe mainly to satisfy US demand late last year and during the first quarter of this year. Even so freight is steady to soft on most routes. Generally the more sophisticated vessels work the upper end of the clean market for MTBE, naphta, clean condensate and jet fuels, while the older units carry fuel oils, diesel and cycle oils. Because of good freight earnings, at least for MR vessels and bigger, scrapping has lagged behind so that 35 per cent of the fleet is more than 20 years old. A steady increase in the product fleet brought it to 57.0 million DWT by the turn of the year. Another 7.0 and 10.0 million DWT is due from the yards in 2004, while scrapping of older units could reach around 4.0 million DWT.

Chemicals
The chemicals trade is important to North Europe and freight remained steady in March. A standard 5,000 tonne parcel Rotterdam for Houston was up from USD 34.40 per tonne in January to USD 43.30 per tonne in February and consolidated around USD 44.00 in March. However, there is always the knotty issue of chemical tankers in product trades. An important development last year was the use of IMO 2 chemical tankers for lube oil cargoes, because traditional operators in this trade had not upgraded. Stricter regulations could squeeze out a number of vessels with low specs. Expect to see owners looking for more COA business.

//Petter Arentz