Asia LR1 rates trade at 2021 high as tankers delay return to Middle East: sources
11th March 2021 16:23 GMT


East of Suez Long Range 1, or LR1 tankers on March 11 traded at the highest level seen in 2021, on the back of tight supply as more ships delay their return to the Persian Gulf, market participants said.

This was a significant departure from a few days ago when rates had not touched the key psychological mark of w100 even once this year and owners were finding it difficult to earn even $1,000/d on key routes.

More tankers are getting backhaul employment for loading cargoes in North Asia and this has reduced the overall supply in the Middle East, sources said.

"Finally, the market is out from hell," one of the brokers said.

Reliance has chartered a tanker from Abu Dhabi's state-run Adnatco at Worldscale 107.5 for March 25 naphtha loading on the Sikka-Japan route, sources familiar with the matter said. This was 12.5 Worldscale points higher than at the beginning of the week.

Earlier, the company had received offers around w108, and with not much scope for a cheaper ship, it decided to clinch the deal. Adnatco and Reliance executives could not immediately be reached for comment.

Sources said Reliance also has a second stem for a similar laycan for naphtha loading on the Sikka-North Asia route. Sikka has two terminals for naphtha and therefore simultaneous loading of both cargoes is possible, said a broker in North Asia.

Prior to this, the rate, had been languishing at low levels with hardly any earnings for most part of this quarter. "The next fixture will be at w110, if not higher," the broker said.

Sources with most owners agreed. Nevertheless, the gains have not translated into an increase in earnings in a similar proportion as bunkers play spoiler.

At current bunker prices, LR1s are likely to earn around $8,000 daily on the benchmark PG-Japan route and another $3,000/d on backhaul, according to shipping industry estimates. Still, it is an improvement from a few weeks ago when even earning $1,000 daily was a challenge.

"The market is improving but the bunkers are still expensive," a source with an owner said. Like many others, he also attributed the rise in rates to the rise in the backhaul business.

"The Far East market is very active. The Persian Gulf is tight as the backhaul market is busy," the source said. Fewer ships are ballasting to the Persian Gulf, tightening supply, and pushing up rates, the source added.

More ships are now delaying their return to the Persian Gulf while rates are still not high enough to improve earnings, said a source with another owner.

The LR2 rates have also increased but not at the same pace as the LR1s. The latest gains have widened the premium, which LR1s enjoy over LR2s, to more than 20 Worldscale points. At least three LR2 fixtures have been done at w85 on the benchmark Persian Gulf-Japan route, sources said.

S&P Global Platts assessed the benchmark Persian Gulf-Japan LR1 route at w104 on March 10.

Platts ,
11th March 2021 16:23 GMT