Petrochemical freight market faces bearish outlook in 2017

04 October 2016 07:07 Source:ICIS News

cargo ships 19 September 2016

TOKYO (ICIS)--Bearish conditions are expected in the petrochemical freight market come 2017 amid a slowdown in the Chinese markets and an expected increase in the number of tankers available for deployment, industry sources said on Tuesday.

Freight rates are expected to come under downward pressure.

Ship owners will be taking delivery of at least 45 newly built vessels next year, from shipyards in northeast Asia. Some of the new vessels will be used for trading in the West, while others will serve the east Asian region.

"With the current trading situation, these new buildings would end up flooding an already saturated market," said a northeast Asia based ship owner.

Shipping firm Navig8 has four 49,000-deadweight tonne (dwt) vessels that will be delivered within 2017, with an option for six more. The company intends to use these vessels for the transportation of methanol.

"This year, there has been a large number of big methanol volumes being imported into China from Trinidad and the AG [Arabian Gulf]," said a northeast Asian ship owner.

In the last three quarter of the year, ship owners had seen sliding contractual of affreightment (COA) volumes, resulting in increased spot space left to fill in vessels. Most attributed the lower volumes to the lack of import demand from China.

China's economic deceleration, together with the start-up of domestic petrochemical plants, as well as capacity expansion, has reduced the country’s demand for import cargoes.

"Chinese buyers had not been buying cargoes. As such, we have been struggling to fill our ships up this year and ended sailing light a lot of the times," said a northeast Asian-based ship owner.

According to market players, volumes for the usual aromatics cargoes such as aromatics, paraxylene (PX) and styrene monomer (SM), have been sliding on a monthly basis.

Most agreed that there were new trading routes seen this year as volatility in crude oil prices and decreased regional consumption have encouraged traders "to get creative".

"In the past few years, we seldom see cargoes such as MX [mixed xylene] or PX heading towards the US from Asia. It's usually the other way round. But this year, several parcels of MX and PX were quoted in the spot market together with the usual benzene volumes," said a northeast Asian shipbroker.

Most market participants were in agreement that to keep vessels employed going forward, they, too, would have to start trading outside the usual trade lanes and start looking at maximising their earnings.

"We are now looking at new businesses in India and Middle East as we are trying to expand our vessels' trading routes while giving us options on the triangulation and cutting costs by limiting deviations on voyages," said a second northeast Asian based ship owner.

Focus article from Hazel Kumari

Read John Richardson's Asian Chemical Connections blog

By Hazel Kumari