Weight of Freight: Naphtha tests positive for clean tankers

Author Sean Zhuang, Senior Reporter, Freight and Andrew Khaw, Editor, Asia Freight

The year 2021 marked a new paradigm for the tanker freight market, with shipowners recording huge losses and record-low earnings. The rollercoaster drop from highs just a year ago made it feel worse. But the year-end holidays are behind us and clean tanker freight rates are starting to show green shoots of growth as 2022 begins.

Demand for naphtha paves the way

LR2, LR1, & MR rates from Mideast Gulf

Japanese demand for naphtha caused clean Long Range (LR) 2 rates from the Mideast Gulf to Japan to rise from WS95 at the end of October to WS130 on 22 December, as well as buoyed by the Asia-bound naphtha arbitrage reopening because of disruptions to European gasoline blending and a US Gulf coast cargo influx.


Not to be outdone, LR1 rates from the Mideast Gulf to Japan on 10 December rose to WS132.5 from WS126 on 29 October. Argus recorded a salvo of 33 naphtha shipments from the region to Japan and east Asia during the first full week of December, which comprised 14 LR2, 11 LR1 and eight Medium Range (MR) vessels.  


Japan’s naphtha imports were 17.85mn t (159mn bl) during January-November 2021, according to Japan’s finance ministry data, a 7.5pc increase from 16.6mn t for the same period in 2020.


Japan’s top naphtha suppliers during January-November 2021 were the UAE at 3.6mn t with a 40pc increase from 2.56mn t in 2020, Qatar at 2.93mn t despite a 12pc fall from 3.35mn t a year earlier. South Korea at 1.57mn t that was 6.5pc down from 1.68mn t in 2020, the US with 1.5mn t that was a 10pc increase from 1.37mn t the previous year and Saudi Arabia with 1.33mn t that surged by 85pc from 719,914t in 2020.


November recorded the highest naphtha flows from the Mideast Gulf to Japan in 2021 with 10.73mn bl, according to Vortexa data. February recorded the lowest with 5.95mn bl, an 80.34pc difference against November.

2020-2021 South Korea to Singapore MR rates

MR rates failed to disappoint either, with Africa-bound rates from the Mideast Gulf rising to WS212.5 on 21 December from WS192.5 on 29 October because of firm demand and domestic refinery shutdowns. MR rates from northeast Asia also rose, led by increased jet fuel and diesel exports from China in November. This paved the way for December’s surge in rates where lump-sum rates from South Korea to Singapore spiked for the fifth consecutive day by about 17.6pc to $500,000 on 10 December from $425,000 the day before, as the strong demand and a flurry of fixtures over the week depleted tonnage supplies in northeast Asia. Rates from South Korea to Singapore hit a 17-month high at $620,000 on 14 December, as demand was solid and vessel supplies were mostly depleted for loading windows before 26 December. Rates typically taper off towards the end of the year because of the festive holidays but tend to pick up after the new year.


What does this mean for the future?


The Covid-19 Omicron variant remains a concern and could possibly curb stronger gains. But clean petroleum products such as naphtha, which is widely used for gasoline blending and plastic manufacturing, are likely to see firm demand still as Covid-19 pandemic restrictions relax, domestic travel, staycations and online shopping continue. The Mideast Gulf will continue to be the leading supplier of naphtha to Asia-Pacific. Mideast Gulf countries exported a record 4.5mn t (1.34mn b/d) of naphtha in November 2021, according to Vortexa data dating back to 2016, with the majority headed to Asia-Pacific.


Very large crude carrier (VLCC) newbuild deliveries could also limit the rebound in clean tanker rates. Some 48 VLCCs are expected to be delivered in 2022, according to shipbroker Simpson Spence Young, compared with 33 delivered in 2021. Around 45pc of VLCCs carried clean petroleum products on their maiden voyages in 2021, with about seven MR shipments combined needed to equal a single VLCC shipment.


But demand for crude, oil products and petrochemicals will grow as global Covid-19 vaccination percentages increase and economies rebound. Expectations for naphtha demand is especially solid, as China pivots away from road transportation fuels and gears up to be a regional petrochemical giant as part of its roadmap to cut carbon emissions. The IEA forecasts global oil demand to surpass pre-pandemic levels, increasing by 3.3mn b/d from 2021 to 99.6mn b/d for 2022.


So taking all of these factors in to consideration, expectations for 2022 are positive and clean tanker market should at least perform better than in 2021.


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