Some see bleak year for chem shipping

Global consultant Drewry says too many ships and low fuel prices will drive down rates, but US shipper Navig8 sees opportunities. (Image: Navig8’s Solidarity)

HOUSTON (ICIS)–Too many ships and low fuel prices should push chemical shipping freight rates down consistently throughout 2016, a leading global consultant said on Friday.

The latest edition of the Chemical Forecaster, published by London-based consultancy Drewry, said that shipyards still have capacity to build more chemical tankers, leading to expectations that more ships will be ordered for delivery in 2017 and beyond.

“None of this leaves us optimistic about the future of the chemical tanker industry and our outlook for this segment is quite bleak,” said Hu Qing, Drewry’s lead analyst for chemical shipping.

Market fundamentals show a large amount of new vessels scheduled to hit the market in 2016, Drewry said.

In addition, many new production projects, such as MTO (methanol to olefin) plants in China, appear to be on hold pending a consensus on the long-term trend of oil markets.

The lifting of sanctions on Iran appeared to be a positive sign for that country’s petrochemical industry and it is expected that the volume of trade from Iran to Europe and the Far East will increase, Drewry said.

El Nino brought dry weather across southeast Asia, affecting the palm oil producing countries of Malaysia and Indonesia by lowering yields and output. With prolonged dry weather caused by the August 2015 drought and the effects of El Nino, palm oil production is likely to decline substantially in 2016.

“We expect spot activity out of the Middle East and US Gulf to increase significantly in 2016, but freight rates for both contracts of affreightment and spot cargoes will remain under pressure throughout the year, as there are some new operators looking to break into the long-haul trade routes,” said Qing.

US shipbroker Netco said in its latest monthly report that the start of the Lunar New Year holiday on 8 February has lowered its outlook for 2016.

Netco said that, since China emerged as a key player in the global petrochemical market, the holiday has begun to replace the western New Year’s in importance.

“Usually what transpires after that is a satiated Chinese appetite for imports and the market begins its slow decline into the summer months,” Netco said. “With all the negativity surrounding the global markets, we think this pattern holds true this year more than ever, and we expect a declining market on all fronts” beginning at the end of February.

A contrary opinion came from US chemical shipper Navig8 this week in its quarterly earnings release.

Navig8 said the growth of long-haul petrochemical trades, and especially the growing movement of methanol cargoes from the Caribbean and US Gulf to Asia, has made the shipper optimistic enough to contract for buying four new tankers in recent months.

“We remain bullish on our outlook for increasing long-haul trades as additional chemical manufacturing capacity comes online in the US and Middle East, and China transitions from an industrial to a consumer led economy,” said Navig8.

Focus article by Lane Kelley

INSET IMAGE: The chemical tanker Cervantes is shown in Rotterdam harbour. (Source: Danny Cornelissen/Wikimedia Commons)