Clean tanker rates fall on Asian cracker shutdowns

Long Range 2 (LR2) and LR1 clean tankers freight rates from the Mideast Gulf fell because of weak import demand from Asian crackers.

LR2 and LR1 freight rates for 75,000t and 55,000t shipments from the Mideast Gulf to Japan, and to east Asia dropped by about 33pc to WS180 and 27pc to WS230 respectively on 13 January, from WS270 and WS315 on 3 January, because of persistently weak cracker margins.

Chartering activities have also been sluggish following the new year and ahead of the upcoming lunar new year celebrations. LR2 fixtures fell from 17 during the last two weeks of December 2022 to 12 over the first two weeks of January, while LR1 fixtures fell to eight from 15 over the same period, Argus' records show.

Argus time charter equivalent (TCE) rates for LR2 vessels from the Mideast Gulf to Japan were lower by about 44pc to $43,423/d on 13 January from $77,949/d on 3 January. TCE rates for LR1 vessels on the route fell by about 35pc to $44,207/d on 13 January, from $68,159/d on 3 January.

Weak import demand from Asian crackers

Demand for naphtha shipments fell as several Asian crackers reduced their operating rates or extended their cracker shutdowns because of persistently weak cracker margins.

South Korean petrochemical producer Hyundai Chemical is considering shutting its Daesan-based heavy residual cracker in February, probably for 3-5 months because of persistently eroding cracker production margins. The producer is aiming to shut its 900,000 t/yr cracker with 450,000 t/yr propylene output, likely from the first half of February to end of June.

Some cracker operators in Asia are either mulling full shutdowns or extending their cracker turnarounds. South Korea's YNCC is extending its No.3 Yeosu-based cracker shutdown to end of February. Thailand's SCG is also extending its Rayong Olefins cracker shutdown in Map Ta Phut from September 2022 to at least mid-January. Taiwan's Formosa Petrochemical will likely keep its No.2 cracker in Mailiao shut for the first quarter of 2023. Philippine's JG Summit is aiming to shut its Batangas-based cracker again in the first quarter of this year because of weak margins.

Most crackers in South Korea — if not all — are operating at reduced rates because of thinning cracker margins since early last year. Cracker margins have been under pressure despite producers cutting cracker rates to reduce olefins output because of weak downstream demand and high feedstock prices. Average naphtha cracker-based margins settled at minus $237/t last year, much lower from $96/t in 2021 and $310/t in 2020, Argus' calculations show.

Volatile freight rates likely

Freight rates could be volatile in the short term, despite persistently weak demand from Asian crackers for naphtha as a petrochemical feedstock.

This is because Asian crackers and traders in Asia are buying fewer barrels of commercial tank origin naphtha in the backdrop of looming oil product sanctions, a Singapore-based naphtha trader said. Many traders are now more cautious and hesitant to "touch Russian-origin cargoes", for fear of potential risks that are associated with such cargoes, another Singapore-based naphtha trader said. Traders would rather import from identified sources in the Mideast Gulf-India region, a clean petroleum market participant said.

By Sean Zhuang and Andrew Khaw

Mideast Gulf to Japan LR2 and LR1 rates Worldscale and TCE