Price and market trends: Balance brightens shipping outlook

11 January 2013 11:32  [Source: ICB]

Vessel arrival data in Houston, the petrochemical hub of the US, shows that chemical tanker traffic boomed in 2012


As fleet growth slows, industry analysts predict greater balance in tanker supply and demand

Copyright: Robert Orr

After enduring yet another year hampered by the effects of a weak global economy, there may be light at the end of the tunnel for the chemical tanker industry in 2013.

With demand for the shipment of chemicals remaining at low levels, the industry had previously been laden by tanker new builds entering the market, adding to the already well-supplied tonnage present.

However, industry analysts now predict the supply and demand of these tankers will be nearer equilibrium.

In its sector report for the chemical tanker market, the equity analysts DNB predict a positive recovery in the industry, "supported by the fact there is close to no order book left in this segment."

RS Platou is one of many analysts who see positive signs ahead for the sector.

In its latest shipping quarterly report, the investment bank predicts a lower fleet growth ahead.

Using data from Maritime Strategies International, RS Platou forecast fleet growth of 2.4% and demand growth of 4.5%, with fleet utilisation improving to 87.3% this year.

"In such a scenario, rates should improve 7% in 2013," the report said.

Meanwhile, the lack of demand for the shipment of chemicals continues to suppress freight rates across most routes globally.

According to ICIS data, spot freight rates from Rotterdam to the US Gulf averaged $55.50/tonne (€41.93/tonne) for a 2,000 tonne parcel during the week ending 7 December, a decline of $1.50/tonne from the same period last year.

With high crude oil prices continuing to place an upward pressure on bunker fuel costs, signs of a likely improvement to freight rates will be most welcome by market participants.

Frode Morkedal, equity analyst for the shipping market at RS ­Platou, believes that bunker costs will most likely stabilise this year, and with freight rates improving, will not have as detrimental an effect on profit margins as ­witnessed last year.

With China also expected to re-enter the market to rebuild their inventories, Morkedal believes that demand from this region will bolster activity and help improve market conditions overall.

More proof that the chemical shipping sector is in better shape than the overall shipping industry comes from the US.

Vessel arrival data in Houston, the petrochemical hub of the US, shows that chemical tanker traffic had been booming on the ship channel in 2012, continuing the surge on the Texas waterway that began in late 2011 from petroleum-product shipments.

November chemical tanker arrivals on the Houston Ship Channel increased by 47% year on year, marking the 14th straight month of large gains for such vessels.

The rise in chemical tanker arrivals showed bigger gains by far than any other vessel category from January through November.

Crude tanker traffic, which accounts for the greatest number of ships on the waterway, fell by 19% in the first 11 months to 2,644 tankers of 2012 compared with 3,281 tankers in the first 11 months of 2011, according to data from the Greater Houston Port Bureau.

Chemical ships leaving Houston and the rest of the US have also become an essential part of the trade with Asia.

The chemical carrier trade has evolved into Europe and the US being the feeder regions for China and Asia, which in turn keep the West supplied with vegetable oils, according to Pareto Securities in Oslo.

The way it usually happens, according to a recent report from the Odin Marine Group, is that Europe and the US compete to feed China's demand.

"Typically the US will move the bulk of the product in the beginning of the trend but when the supply in the US tightens, more of the volume is sourced out of NW Europe," according to the Odin report.

However, the US petrochemical industry's access to cheaper feedstock, particularly because of expanded shale gas production, has given the country a major advantage in exporting chemicals to Asia, according to a Pareto report.

A turnaround in chemical shipping should become apparent in 2013, Pareto said.

"After four difficult years, we believe we are now starting to see a gradual recovery in the chemical tanker market with utilization past the trough," according to the Pareto report.

Author: Neha Popat and Lane Kelley

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