VLCC market to stay supported amid coronavirus outbreak: International Seaways

The global tanker freight market, namely that of Very Large Crude Carriers, is facing a bullish environment despite temporary impacts of the coronavirus outbreak, International Seaways CEO Lois Zabrocky said Tuesday.

Although overall demand from Chinese crude buyers has decreased significantly, with the International Energy Agency estimating that crude throughput for the country will fall 1.1 million b/d in the first quarter, cargo inquiry has remained steady. A number of geopolitical factors and supply-draining fundamentals are currently lending support to freight, Zabrocky said in the company's fourth-quarter 2019 earnings call.

There has not been a significant reduction in the amount of VLCC cargoes booked as the coronavirus outbreak ramped up, with February seeing about 10 fewer VLCC bookings out of the Americas compared with January, S&P Global Platts fixtures logs show.

"Cargoes are still moving and the liftings are still happening," Zabrocky said.

The biggest change has been that previously booked VLCCs are seeing changes to their place of disport, namely shifts in delivery to India or for floating storage off the coast of Singapore, Zabrocky said.

International Seaways, as well as other shipowners, is looking to a number of bullish factors including: an increase in ton-mile demand as non-OPEC crude interest out of the Atlantic basin ramps up; the Chinese trade deal eliminating tariffs from US crude imports, and a contango crude pricing structure fueling floating storage needs.

Adding to a tightening supply environment, the order book remains at historical lows, and scrapping on older ships is expected to increase as freight moves lower from the dynamic rates seen in Q4 2019 and January 2020.

Freight rates for VLCCs making the long-haul USGC-China voyage saw an all-time high of $21 million on October 14, just more than two weeks after the announcement of US sanctions on affiliates of major Chinese shipowner Cosco Shipping. After that, the USGC VLCC market saw rates sit above the $9.5 million level until the end of January 2020.

However, rates have since declined amid the coronavirus outbreak and the reintroduction of Cosco tonnage back into the market, with freight for the USGC-China VLCC route last assessed at lump sum $6.5 million Monday. Year on year, freight has remained at higher levels, with rates up 5% in February 2020 from 2019.

SCRUBBER INSTALLATIONS AFFECTED BY CORONAVIRUS

Scrubber installations and newbuild orders have seen significant delays from the coronavirus outbreak as Chinese shipyards face understaffing issues.

International Seaways has been affected by the delays, with the two of the 10 VLCCs that are in the scrubber installation program currently in drydock at Chinese shipyards.

The company has continued to trade five of the 10 ships that are currently in the queue for installations however, retaining earnings on those ships in the meantime.

The 10 ships are expected to be trading in the spot market by the end of the second quarter, with three of the ships already having completed installation.

In the IMO 2020 sphere, the company has not faced significant impacts following the implementation of low sulfur bunker fuel regulations, Zabrocky said. The company has been able to book bunker supply in advance to prevent any significant delays or quality concerns.

A significant 24 VLCCs are continuously in use off the coast of Singapore, holding various VLSFO or LSFO bunker cargoes, Zabrocky said, and the market is trying to gauge if floating storage will become a part of the typical trade flow in the global VLCC market.