Asian tanker cargo falls as Russian naphtha pushes out to Persian Gulf via Singapore

Asian clean tanker cargo is likely to come under downward pressure over the next few weeks on weak demand for naphtha from the Persian Gulf and India, as Far East buyers instead step up their purchases in Malaysia and Singapore, several market participants said on June 26.

The clean tanker route from Singapore to Japan and South Korea, which had become illiquid or rare over the past 12 years, has seen a gradual revival.

“As Russia diverts its own naphtha to Asia, some of it ends up in coastal tanks in Southeast Asia and eventually the Far East,” said a trade executive involved in such deals.

Under the current European and US sanctions regime against Russia, third countries are allowed to buy Russian oil and refined products as long as the base price cap is respected.

Even though the purchase of products such as naphtha is allowed, Far East importers prefer to source indirectly after the product is already stored in Singapore or Malaysia to avoid legal complications related to shipping, insurance and finance, the managing director said.

“Since the bill of lading is in the Far East, we’d like to believe it’s Singapore naphtha,” a source from one such Far East importer said on the sidelines of the S&P Global Commodities Forum in Seoul, held during the week until June 23rd.

These cargoes from Singapore’s storage tanks are about $25 a ton cheaper compared to cargoes from the Persian Gulf, the source said.

“Singapore cargoes, including cargo bound for Japan and South Korea, are cheaper than free on board from the Persian Gulf,” the source added.

According to another source, shipments equivalent to about half a dozen MR-size naphtha shipments are shipped from Singapore and Malaysia to the Far East every month, although some of the packages were loaded into LR1.

Singapore, itself a net importer of naphtha that regularly imported up to half a million tons a month from India and the Persian Gulf through March, has reduced its purchases, a broker involved in such deals said.

South Korea and Japan, together the world’s largest importer of naphtha, along with their purchases from the Persian Gulf, are important in helping to transport clean tankers. Shorter voyages from Singapore resulted in fewer Persian Gulf loads and hence less freight.

Earlier this month, LR tanker cargo on benchmark Persian Gulf-North Asia routes fell to its lowest level in four months, according to data from S&P Global, as demand eased.

The average number of combined two-week spot operations on LR tankers loading clean product in the Persian Gulf, Red Sea and west coast of India for delivery to the Far East and Europe was down by as much as a dozen per two weeks in the current quarter compared to the two previous quarters, according to broker estimates.

Typically, there are about 200 of these long-haul LR facilities each month for the transportation of refined products, and demand for the transportation of gas oil and jet fuel is insufficient to offset the shift in naphtha trade flows, the brokers added.

In March, the flow of naphtha from the Middle East to the Far East was more than 3 million tons, while the shipping industry estimates that it has been less than 2 million tons in each of the past two months.

weaker margins

However, shipping managers and traders in the Far East pointed out that it was not just the shift in naphtha trade flows that was affecting cargo.

Aggregate demand has also weakened due to poor margins and yields in polymer production. As a result, petrochemical plants have reduced their capacity utilization, an ethylene and polypropylene trade manager said.

They’ve even extended maintenance periods and are considering selling their crack units, he said.

All these factors combined led to a decrease in the earnings of clean tanker owners.

Assuming bunker prices of about $600-$612 per tonne, owners on the Persian Gulf-North Asia LR reference routes were making about $23,000-$26,000 per day compared to $73,000-$83,000 per day earlier in the year , brokers said.

Related Articles

Back to top button

Subscribe To Our Newsletter

Don't miss new updates on your email