Low Australian LR2 prices subdue SE Asian Aframax rates

Southeast Asian Aframax freight rates have been unable to gain momentum for more than two weeks despite firm regional chartering activity, as Aframaxes have ballasted from Australia to escape fierce competition from Long Range (LR) 2 tankers.

Freight rates for 80,000t Aframax shipments for the southeast Asia-Australia and Indonesia-Japan routes have held at WS152.5 and WS155 respectively since 12 May. Competition from LR2s have been steep because of lower rates in the clean tanker segment. Argus' estimated time charter equivalent (TCE) rate for Aframax vessels from Australia to Singapore was about $40,000/d on 25 May. The Argus TCE rate for an LR2 tanker on the Mideast Gulf-Japan route was about 43pc lower at $22,798/d on 25 May.

Rates for clean LR2 tankers have been driven lower as northeast Asian petrochemical producers looked at alternative propane feedstock. Demand for naphtha has diminished with alternate feedstock propane at a discount to naphtha values since the end of February. The shift pushed valuable tonne-mile-demand into the gas carrier segment. Most crackers in South Korea are naphtha fed, with the flexibility to take 10-20pc of propane as an alternate feedstock. Producers such as Lotte Chemical and LG Chem since March have been on track to use propane to feed their crackers. Other northeast Asian producers such as Taiwan's Formosa are also using 10pc of propane as cracker feedstock.

Charterers as a a result have been able to secure deals on clean LR2 tankers at a discount. Argus recorded at least three cargo shipments from Australia done on clean LR2 tankers in the week of 22 May. BP booked the STI Kingsway and the STI Lotus at WS135 for its 75,000t shipment from Dampier, Western Australia (WA) to Singapore and Japan, loading from 4 June and 9 June respectively. Chevron booked the Rong Lin Wan at WS140 for its 75,000t shipment from WA's Wheatstone to South Korea, loading from 12 June. These fixtures were done about WS10 points lower to prevailing Aframax market rates on the route, market participants said.

Increased chartering activity in southeast Asia encouraged Aframax shipowners from Australia to ballast northwards. A total of 20 fixtures were done in southeast Asia over 15-26 May compared with 14 in the first half of May, according to Argus data.

Weaker bunkers

Relatively lower bunker prices could have also encouraged this trend, as the price of very-low sulphur fuel oil (VLSFO) with 0.5pc sulphur in Singapore was at $563.92/t on 26 May, down by $56.08/t from $620/t on 13 April. The lower bunker prices would save shipowners about $9,500 on their ballasting costs.

Freight rates in southeast Asia could drop in the short term if Aframax volumes continue to rise, a shipbroker said. Regional vessel supplies rose to around 50 on 29 May over the next month period, up from about 39 from 20 May. A continued downwards trend of bunker prices in Singapore could lead charterers to reduce their bids if fundamentals fail to firm. The price of VLSFO with 0.5pc sulphur in Singapore fell to $563.92/t on 26 May, down by 3.6pc from $585.15/t a week earlier.

By Hamren Hamid and Andrew Khaw