OUTLOOK '09: Chemical shipping faces stormy waters

07 January 2009 14:29  [Source: ICIS news]

By Dan Horlock

LONDON (ICIS news)--The chemical shipping industry is facing tough conditions this year with crew shortages, piracy problems and poor market conditions due to the severe economic downturn, industry observers said.

Crew shortages are a genuine reality, according to some operators, which could further stagnate growth in the chemical tanker industry.

There was already a shortage of qualified crews available to operate chemical tankers and the increase of piracy, especially in the Gulf of Aden, was hardly attractive to prospective employees, owners said.

Piracy problems in the Gulf of Aden meant that chemical tanker operators Odfjell, amongst others, would continue to divert their fleet around the Cape of Good Hope, as opposed to using the Gulf of Aden, Red Sea and Suez Canal.

The significant extra cost, which could be as much as $250,000 according to some European brokers, would add to the pressure on ship operators in a quiet market, sources said. The situation would impact delivery times of cargoes from Asia to Europe in 2009, traders working the route said.

The new EU naval patrol force would have to do better in combating  pirates for the sake of the industry, ship operators said. 

In addition to piracy problems, poor market conditions saw shipping across the regions suffer in the last three months of 2008 with chemical cargoes difficult to secure while crashing product prices were dissuading buyers from entering the market.

In Europe, one North Sea broker noted that benzene pricing had fallen by 75% in recent weeks, which meant that contract cargoes from Hamburg to all North Sea ports were being cancelled with spot cargoes non-existent.

“The unstable market conditions meant that buyers were unwilling to commit to fixed prices,” the source said.

This was one example of a shipping market that European players described as ‘unprecedented’ for its dearth of activity.

Trans-Atlantic trade was not exempt from the downturn as open positions in the US Gulf were noted in spite of production plants coming back on line in October after the damage caused by Hurricane Ike.

The distinct lack of cargoes due to the poor state of the global economy had already seen Svithoid Tankers employ two financial advisers to help save the company from liquidation, and this episode was set to repeat itself across the sector in 2009, according to industry players.

“The case of Svithoid Tankers proves that the industry is becoming more difficult for smaller-to-medium sized owners to operate in,” one ship operator said.

There was some good news, however, with a reduction in price of bunker fuel, a ship operator’s main operational cost.

Fuel costs had dropped 70% from highs of $700/tonne (€518/tonne) FOB (free on board) Rotterdam in July to just over $200/tonne FOB Rotterdam in December. Bunker fuel is directly linked to crude oil and was expected to remain at current price values over the coming months.

The Asia-Pacific region was one area where brokers remained positive as tonnage was seen open in December. Chinese requirements for nitrobenzyl alcohol (NBA), mono ethylene glycol (MEG), paraxylene (PX) and orthoxylene (OX) suggested that demand could return in early 2009, making the route more lucrative, a source said.

However, the International Monetary Fund (IMF) predicted that growth in 2009 in emerging economies such as China was on the decline and would not compensate for recessions in developed countries.

"The possibility of a global recession is real, we realise something must be done,” IMF managing director Dominique Strauss-Kahn said.

($1 = €0.74)

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ICIS Copyright © Reed Business Information 2009

Author: Dan Horlock
44 20 8652 3214

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