The ups and downs of the product tanker freight rates have defined the market during the course of the year, as ship owners went from a down market to one of extreme strength. According to the latest report from shipbroker Gibson, "over the course of this year the product tanker market in the East has moved from extreme weakness to a remarkable strength. Back in February/March 2012, earnings for all product tanker categories in the region sunk below fixed operating expenses, to their lowest level in over a decade. Now the opposite is true - clean tanker returns have surged to their highest level since early 2009. Tce earnings for LR2s trading from the Middle East Gulf to Japan have averaged $24,500/day this month (at market speed), while LR1 earnings on the same route averaged at $19,250/day. The returns for MRs operating Singapore – Australia followed a similar trend, jumping to $16,750/day" it said.
As it is frequently the case, the latest strength in the product tanker market in the East has been driven by tight supply/demand fundamentals, with strong levels of chartering interest in recent weeks notably limiting tanker availability. Gibson added that "however, for larger product tankers the latest tightening in supply is also in part attributable to the exceptional weakness in earnings earlier this year as well as in 2011, as some tanker owners were prompted to move away from trading clean to try their luck in the dirty market. Since the beginning of last year, at least 44 coated tankers between 80,000 to 120,000 dwt have switched from clean to dirty trading. There are currently 244 coated tankers in this size group, and so the number of vessels that left clean employment represents a sizable 18% of the fleet. Not surprisingly, market conditions are tight at present! A number of LR1s also switched from clean to dirty, although the percentages are lower here – but still at 7% of the trading fleet" it said in the report.
Gibson also mentioned that "now, with clean product tanker returns at very robust levels, there may be a temptation to switch back to trading clean! However, just a few have done so recently, as while it is very easy to move from clean to dirty, it is not so simple to do it the other way around. Apart from direct clean-up costs and waiting time involved, owners also need to discount their first three fixtures. These indirect costs can reduce significantly, if not destroy completely the economic benefits of switching to clean, depending on how long the strength in the clean market lasts. Thus owners need to think very hard before moving from dirty to clean trading. However, for those who are already trading clean, these “barriers” to enter the market mean that tightness in supply (and with it higher returns) could last for a while longer, particularly if demand remains at healthy levels" the London-based shipbroker concluded....hellenicshippingnews
Tanker Rates Rising as Ethanol Imports Triple Into U.S.
The U.S. is importing the most ethanol in four years after the country’s worst drought in a half century drove corn prices to a record, boosting demand for tankers hauling the fuel.
Imports almost tripled in the third quarter from a year ago after domestic output slumped for the first time in 16 years, Energy Department data show. Almost all the extra supply is being shipped by Brazilian refiners, who use sugar as a feedstock. Shares of Odfjell SE (ODF), the world’s second-biggest operator of chemical tankers, will almost double in the next year, according to the average of five analyst estimates compiled by Bloomberg.
The least rainfall since 1956 drove corn, the main ethanol ingredient, up as much as 68 percent since June and as many as 10 companies from Valero Energy Corp. (VLO) to Biofuel Energy Corp. (BIOF) closed plants. Gasoline suppliers are now more reliant on imports to meet laws requiring a 10 percent ethanol blend in the fuel. While that’s boosting shipping by diminishing the glut of vessels, it’s coming at a time when the U.S. is meeting more of its own energy needs than at any time in the past 21 years.
“We’re using Brazilian imports to plug the gap,” said Jerrod Kitt, the director of research at Linn Group, a Chicago- based commodities research company. “In terms of the stated goal of reducing dependence on foreign fuels, the Brazil imports haven’t exactly helped.”
Ethanol is one of about 500 products, including alcohols for solvents, aromatics for paints and sulfuric acid for insecticides, carried on the 550-foot-long chemical tankers. Some also haul refined fuels such as gasoline and diesel. Rates for the ships across 23 trade routes rose to a record average of $70.39 a metric ton this year, 4 percent more than in 2011, according to Clarkson Plc (CKN), the world’s largest shipbroker. 12-5-12 shippingherald.
NNA is approaching buy levels. No one should be getting un-nerved as it perhaps retests its previous low. This is no time to be bailing. We all should have been expecting this event. At $2.88 I dumped all my shares when this stock was demonstrating an unnatural exuberance, suggesting to me it could be bought back much lower. And I suggested as much to the posters here. If the politicians continue to distress the markets, as expected, through the end of the year then NNA will be available at bargain prices. $2.30 is not impossible. But I will get back in when I sense it has reached its low. If that is $2.30 NNA will be yielding 8.7% If your money is sitting on the sidelines, all this "fiscal cliff" talk only brings joy to the heart as one anticipates getting back in at a most favorable level.
Every report seems to include the caveat that the clean market strength might be temporary, so lots of hedging going on. Still, that seems to be countered by the optimism shown by the likes of STNG in chartering in 3 units with multiple follow-on period options. All of this ought to translate to optimism for NNA, but alas it it not - NNA is down substantially while STNG is up. The comparison is maddening. The two companies are equal at best in terms of economic profiles, but you could argue that NNA is the better positioned. Again, I say it comes down to institutional appeal. A previous poster posited that NNA would experience tax loss selling since investors want to harvest their losses and NNA certainly has been a loser this year. I buy that argument, but it doesn't necessarily imply a turnaround in 2013. All of this just means that NNA is that much more of a screaming bargain, but that work still needs to be done at the company. They can't coast from here. AF&Co. need to close the perception/appeal gap with STNG. A small place to start would be to change the name of the company to something with the words "tanker" or "energy" or "transportation" and to amend the SIC Code.
Besides tax loss selling you simply have a sector that investors/banks/insurance companies want to avoid. I think everyone is seeing the bankruptcies,low shipping rates and questionable turn around timing for virtually everything that floats (except gas carries) and finding other places to put their monies. Lets face it, the shipping industry is in a depression.
I will continue to reinvest my dividends at these low share levels. Good risk reward IMHO.
NNA Yielding 8% makes the wait for market revaluing the shares worthwhile.
And, NNA has most of their charters on profit sharing, so if rates stay high for 2013 (and beyond) NNA has substantial upside leverage (while having appreciable downside protection by the long term charters).
There may be some discounting of NNA owing to its VLCC exposure, but here too, the contracts are mostly very long term, and thus should provide stable income for many years.