OUTLOOK ’14: Asia, Mideast chemical shipping market seen sluggish

23 December 2013 02:37  [Source: ICIS news]

By Muhamad Fadhil

SINGAPORE (ICIS)--Shipping activities for chemicals in Asia and the Middle East are expected to be sluggish for the most of next year, with demand likely to stay subdued amid uncertain economic conditions, market players said.

In northeast and southeast Asia, demand fundamentals will likely be uncertain after the Chinese New Year festival in end-January, they said.

“Demand will likely be subdued like this year and the fate of the global economy is still unknown. The US and eurozone debt crisis might shake the entire system again and negatively impact sentiment,” an Asian-based shipping source said.

With near-term profitability under threat by weak market conditions, shipping companies may be forced to consider restructuring their businesses, industry sources said.

“Margins are razor thin. Shipping firms are considering all alternatives to stay competitive and in some cases, stay afloat,” a Middle East-based petrochemical producer said.

Freight rates for chemicals to the southeastern and northern regions of Asia may peak in mid-January as demand typically gains momentum ahead of the Lunar New Year, which falls on 31 January in 2014.

The festivity, also known as the Chinese New Year, is celebrated in most parts of Asia.

“But what happens after that is anybody’s guess,” a southeast Asian shipbroker said.

Charterers will likely adopt a wait-and-see approach starting mid-February, a northeast Asian shipowner said.

“Who is going to buy after Chinese New Year? I am not sure. Everyone will take a tentative approach and this might spook the market,” the shipowner said.

In the Middle East, spot shipping activity is also likely to be quiet in 2014 with fixture agreements still focused on a contract-of-affreightment (COA) basis.

COA is an agreement between charterers and shipowners for the carriage of large volumes of cargoes over a fixed period of time.

Market players in the Asia and Middle East are also closely watching the possible lifting of trade sanctions on Iran and its impact on the shipping market.

“Freight rates may go up as more ships lying in wait in [Saudi Arabia] and the United Arab Emirates (UAE) will go to Iran. Iranian freight rates will likely go down because of increased vessel supply,” a Dubai-based petrochemical trader said.

Despite the overall sluggish demand outlook in 2014, an expected reduction in overall vessel supply may exert slight upward pressure on freight rates towards the end of next year.

The global fleet of chemical tankers is expected to shrink from the end of 2014 with fewer new ships built and more vessels scrapped, a Singapore-based shipping analyst said.

Building of new chemical tankers peaked in 2008 while growth of new tankers continues to slow in 2013, the analyst added.

“Supply of vessels will be a major issue. Should the rate of tanker supply shrink faster than demand, we may see a possible uplift in freight rates in 2014,” a separate Asian shipbroker said.

By: Muhamad Fadhil
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