Corrected: Chemical market set to see increasing shipping costs

Correction: In the ICIS news story headlined “Chemical market set to see increasing shipping costs” dated 8 November 2011, in the second paragraph please read … “increases have partially absorbed” … instead of … “increases have absorbed” … also … in the 11th paragraph, please read … “a reason for longer voyages” … instead of … “for slower speeds” and read “lower freeboard”… instead of … “lower manifold”. A corrected story follows.

SINGAPORE (ICIS)–The Asian and global chemical markets are set to experience shipping cost increases related to higher fuel costs and possible new vessel costs, SSY Shipping senior analyst Will Bathurst said Thursday at the ICIS Asian Phenol-Acetone Conference.

“Modest freight rate increases have partially absorbed increased bunker fuel costs,” Bathurst said. “They’ve been passed down the chain.”

However, Bathurst added that further cost increases are expected in 2012.

The biggest factor in higher shipping costs for chemicals will be pricier bunker fuel.

Bunker fuel is a derivative of fuel oil, which is facing environmental legislation to decrease its sulphur content.

With low-sulphur fuel oil already tight in the market because of a trade deficit in Europe, and demand expected to rise because of the regulations, fuel oil and bunker fuel costs are set to increase.

“Increased bunker fuel costs are the second biggest worry shippers are facing today,” Bathurst said. “Oversupply is the biggest.”

If low-sulphur fuel oil availability tightens enough to force shippers to switch to distillate-based fuels, costs would be “astronomical” Bathurst said.

A factor that could push down on shipping costs is a surge in new chemical tankers as ship owners look for vessels that can economically travel at slower speeds, thus consuming less bunker fuel.

“This will be the reality, slower speeds on the ocean,” Bathurst said. “However, the current fleet was built for high speeds, to maximise profits.”

Bathurst added that a reason for longer voyages is to navigate around piracy, which chemical tankers are susceptible to because of the vessels’ generally lower freeboard, especially compared to other types of shipping vessels.

The 1st ICIS Asian Phenol-Acetone Conference is held on 8-9 November.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy