Asia chemical shipping to soften, stay challenging

Freight rates for petrochemicals in Asia are expected to be stable-to-soft in 2012 because of weak demand for prompt shipments, oversupply of vessels and increased operating costs, industry sources said.

Demand from the Middle East has been strong and charterers are more keen to book shipping under contracts of affreightment (COA), a major southeast Asian shipowner said.

“We booked fewer prompt cargoes this year,” the shipowner added.

COA is a contract between charters and shipowners for the carriage of a large volume of cargoes, over a fixed period of time, between specific ports or regions.

Shipowners prefer COAs as it provides a guaranteed source of income, as compared with prompt shipments, which largely depend on the volume of commodities traded.

Freight rates from the Middle East to Asia have been declining steadily since the second quarter of this year. Shipment of a 10,000 tonne cargo of easy chemicals from the Middle East Gulf to China Main Port now costs $46/tonne (€35/tonne), down from a yearly high of $72/tonne in April, according to ICIS data.

Freight rates fell on a weak export market because of frequent shutdowns of key petrochemical plants in the Middle East.

In addition, an oversupply of vessels arriving from southeast Asia to unload palm oil products in India weighed down prices.

Freight rates for shipments within Asia were largely stable because of healthy demand from COA charterers. Enquiries for prompt shipments were both from COA charterers that still had requirements and from spot trades, a shipowner in southeast Asia said.

The oversupply of vessels in Asia, coupled with the lacklustre demand for prompt shipments of petrochemicals, is expected to continue and weigh on the recovery of freight rates through to 2012.

“The oversupply situation of vessels is very serious and there are simply too many vessels,” a shipbroker in Singapore said.

“2012 will be challenging for chemical tanker shipping and there may be some consolidation,” he added.

In addition, shipowners face increasing bunker fuel prices, port charges, crewing costs, insurance premiums and other operating expenses, which are hurting revenues.

Prices of bunker fuel oil rose in 2011 and held steady at above $600/tonne DEL (delivered) ex-barge Singapore. The firmer prices hit the margins of shipowners, who were unable to pass on the costs for spot shipments.

Bunker fuel is used for the propulsion of chemical tankers and its specifications differ from fuel oil used for other industrial purposes.

Meanwhile, trading patterns are changing, with exports now moving from the US to northeast Asia – a reversal of previous trends. In the last quarter, freight rates are rising because US producers are clearing off cargoes as the year-end approaches, leading to bumper shipments of glycols, solvents and aromatics to northeast Asia.

Freight rates for the shipment of a 10,000 tonne cargo from the US Gulf to northeast Asia soared past $100/tonne, up by about $30/tonne from September and October, according to ICIS data.

Industry players expect demand for petrochemical products to weaken amid the bleak global economic outlook, and uncertainty in the US and eurozone, which will in turn lower shipping demand next year.

“2012 will be a challenging year for the shipping industry and [the previous] projected recovery of chemical freights in 2013 may be extended to 2014 depending on the global economy,” a shipbroker said, referring to past estimates by industry players that freight rates would recover two years from now.