Feature: Laden MR tonnage builds up in Mexico on discharge delays, ups freight rates

Houston — The global surplus of clean petroleum products and declining onshore storage capacity has led to a buildup of laden clean tankers waiting to discharge in East Coast Mexico, thus pushing freight in the Americas higher even as product prices remain depressed.

Stay-home orders due to the coronavirus pandemic have driven demand lower for gasoline in Mexico, filling the country's limited onshore storage and leaving Medium Range tankers carrying gasoline from the USGC to await discharge for as long as a month, shipowners have said. Subsequently, vessel availability has tightened considerably in the Americas, and freight for Medium Range tankers to load on the US Gulf Coast is increasing rapidly.

"There is basically no discharge in East Coast Mexico. It's not weather related. There is no demand, which means the land storage is not moving into the trucks and no space to put the product that is on the ships," a shipowner said.

PEMEX has only three to five days of inland storage at their terminals, according to industry sources, and the USGC-East Coast Mexico run is known generally to incur substantial demurrage costs due to delays at ports. PMI was not available for immediate comment. Demurrage costs were heard between $27,500-$29,000 Tuesday for an MR, up from $25,000 on Monday.

Market sources not only attributed lack of storage space to less consumer demand but also to an unexpected production increase. Mexico's six refineries operated at about 30% of their 1.6 million b/d capacity in February, slightly lower than their average output in 2019, according to the country's energy ministry. However, market sources said recent production at the 270,000 b/d Cadereyta refinery and 320,000 b/d Tula refinery was running at about 40% and 38% of capacity, respectively. Pemex was not available for immediate comment.

A shipbroker reported around 15 tankers awaiting discharge in Tuxpan and almost 25 in Pajaritos. Platts vessel-tracking software cFlow showed 17 part-laden or laden chemical and product tankers outside of Tuxpan and 19 part-laden or laden MRs outside Pajaritos Monday. The shipbroker expected as many as 40 ships would be out of the spot rotation awaiting berthing in various ports in East Coast Mexico.

"We have ships there and they are not berthing until May or even further, so the USGC will have no available tonnage for a while. We have no estimated time of berth on our vessels in Mexico, Ecuador, and Chile," the same shipowner said.

USGC tonnage availability has tightened considerably in the last week not only because of Mexico but also for naphtha cargoes intended for Japan or South Korea taking ships out of the region for extended periods. This has allowed owners positioned on the USGC to push freight upward as charterers compete for the few area ships. PMI was heard to have placed two ships on subjects Tuesday morning at lump sum $690,000 or $18.16/mt and lump sum $710,000 or $18.68/mt, and freight for the 38,000 mt USGC-East Coast Mexico route was assessed 23% higher day on day Tuesday

GASOLINE STABLE DESPITE DROP

Mexico's inability to bring fuel ashore and store throughout the country has come at a time when US gasoline prices are at their lowest levels in years. US Gulf Coast finished gasoline bottomed out in March at levels not seen since 1999. Mexico is by far the biggest recipient of US gasoline exports, taking 60% of its total shipments in 2019, US Energy Information Administration data showed.

Mexico's gasoline prices have plummeted in the face of the coronavirus pandemic, assessed Monday at $23.93/b for barrels delivered to Tuxpan, down 71.6% from this time last year.

"The impact of the coronavirus pandemic is delayed versus the US, and while there is talk of a reactivation of the economy, here the biggest impact is expected in the second week of May, which means the economy may not restart fully until June," a local gasoline source said.

Mexico gasoline sales fell to the lowest level in 2020 to 701,000 b/d during the 13th week of the year, ministry data showed. The drop was particularly hard in the metropolitan areas of Monterrey, Guadalajara and Mexico City.