China's oil demand remains 'wild card' in tanker market

PUBLISHED : Wednesday, 27 April, 2011, 12:00am
UPDATED : Wednesday, 27 April, 2011, 12:00am


China's uncertain demand for imported oil will be one of the key influences that will affect tanker markets in the medium to long term, according to leading shipowners.

Charter rates for supertankers have slumped since the fourth quarter of last year. Average daily earnings for a 300,000 deadweight tonne very large crude carrier were down last week to about US$18,670 for a voyage from the Middle East to Asia compared with an average of US$41,600 per day last year. This reflected lower demand for oil coupled with an influx of new vessels into the tanker market.

Tim Huxley, chief executive of Hong Kong's Wah Kwong Maritime Transport Holdings, said: 'Chinese oil demand will remain vital to a recovery in the large tanker market. A good chunk of the tanker order book has now been delivered and newbuilding orders are well down compared to last year, and longer term, the outlook for demand looks positive, particularly from China.'

Wah Kwong has three very large crude carriers being built in Dalian which will be put on long-term charter to Chinese companies starting in August when the first supertanker is delivered.

His views were echoed by Morten Arntzen, president and chief executive of Overseas Shipholding Group, who added that the United States and Europe could see a recovery in oil import volumes, but 'China demand is a wild card'.

Arntzen thought growth in mainland demand for oil would have a greater positive impact on tanker charter rates because of the longer transportation distances involved.

'I see tonne-mile growth with vessels taking more cargo east. I don't think that is going to slow down,' he said. More China-bound oil cargoes would come from Venezuela and Colombia, a 45 to 55-day voyage compared with equivalent Middle East to China voyage of around 30 days.

Saudi Arabia accounted for 1.03 million barrels per day of the total imports of 5.13 million barrels per day in March. China imports about 400,000 barrels of crude oil and refined products a day from Venezuela but this is likely to increase as mainland refinery projects start.

China's National Energy Administration has forecast the mainland's total oil consumption will rise 8 per cent this year to 265 million tonnes. By comparison, mainland crude oil imports were 21.67 million tonnes last month, up 8.6 per cent from February, according to China's General Administration for Customs, and up 2.9 per cent year on year.

Overseas Shipholding is part of the Tankers International shipowners pool 'which puts more oil into China than anybody', Arntzen said. Huxley said Wah Kwong's 318.65 deadweight tonne supertanker, Ardenne Venture was on charter to European tanker owner Euronav and trades in the Tankers International pool.

Other members of the Tankers International pool include Hong Kong shipowner Oak Maritime, IMC Marine, which is controlled by legendary Hong Kong maritime figure Frank Tsao Wen-king, and Singapore's GC Tankers.

Huxley said: 'The tanker market is indeed in pretty desperate territory now and high bunker costs mean achieving break even is a struggle.' But longer-term period charter rates are quite positive.

'It will take a bit of time, but overall the tanker market is still probably a good medium to long-term bet for shipping investors.

'In the meantime, historically the only certainty in the tanker market is volatility, so you could easily end up with a surprise or two before the year is out.'