OUTLOOK '12: Chem shipping profits may rise on tighter capacity

23 December 2011 18:00  [Source: ICIS news]

HOUSTON (ICIS)--Chemical shipping profits could increase next year because of sharp cuts in capacity, analysts said.

During 2009-10, there was a glut of chemical transporters. While there could still be too many vessels on the water, they are most likely not carrying chemicals.

Chemical tanker capacity fell 21% this year, according to the UN, as quoted by Bloomberg.

“The market is a lot tighter than people think,” said Erik Folkeson Jensen, an analyst at First Securities ASA in Oslo, as quoted by Bloomberg.

If that tightening continues and volumes surpass fleet capacity, Jensen and other analysts expect 2012 to be the most profitable year for chemical shippers since 2008.

Chemical transport is on the bright side of the shipping business now. The dark side covers oil tanking and dry-bulk commodity hauling, which still have too much tonnage on the water.

Huge tanker capacity is near its highest point in 30 years, according to industry sources. Rates for very large crude carriers, or VLCCs, fell 9.4% this year, according to London-based shipbroker Clarksons, as quoted by Bloomberg.

But chemical tanker capacity has been shrinking. And freight rates rose modestly on most of the major routes in the Americas this year, according to ICIS, although rates on the US Gulf-Asia route have doubled in the past 90 days.

Asian rates remained dormant for much of the year because of the stilling effect of the Japanese tsunami and earthquake in March. The soaring USG-Asia rates represent the biggest rally on that route since April 2009, according to Clarksons.

The latest report from Odin Marine Group said rates are firm on the route from Houston to Asia. “As the end of the year is fast approaching, we see no signs of a slowdown on the horizon,” the report said.

Broker research shows that China continues to be the big magnet for practically any chemical.

Chinese purchases of chemical cargoes including styrene, sulphuric acid and glycols were more than 20% higher in September than a year earlier, according to First Securities.

Drewry Maritime Research said China is the largest buyer of oil- and gas-based chemicals, as quoted by Bloomberg, and the top two exporters are the US and Saudi Arabia.

US exports of the 20 largest-volume chemicals made from oil and natural gas rose 4.7% in the first nine months of this year, according to Drewry. Such data highlight the American advantage in chemical production because of the nation’s cheap natural gas.

Prices for US natural gas have dropped about 25% this year, lowering costs for chemical companies and increasing their edge against Asian producers relying on naphtha derived from crude oil, according to Ole Stenhagen, an Oslo-based analyst at SEB Enskilda, as quoted by Bloomberg.

For a more global picture, the cost of hauling chemicals such as styrene and benzene averaged $63.62/tonne (€48.99/tonne) in 2011 across 15 shipping routes, the highest level since 2008, according to Clarksons.

Shipping analysts look for the overall upward trend in chemical freight rates to continue. SEB Enskilda predicts rates will rise 10% in 2012 and 15% in 2013.

First Securities agrees. “We will have an improvement next year and a bigger one in 2013,” Jensen said.


For more on styrene, benzene, sulphuric acid and glycols, visit ICIS chemical intelligence

By: Lane Kelley
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