Tanker market eyes bunker price fall, 2010 Worldscale rates
By William Bathurst; Elza Turner & Pradeep Rajan
September 29 - The average cost of bunkers has dropped around 39% in the leading bunkering ports of the world from last October 1, according to Platts data, leading some in the tanker industry to expect falls in 2010 Worldscale flat rates.
"I expect the flat rates to come off mainly because bunkers have come off," a broker said.
As part of the basis of its annual flat rates, Worldscale Corp. uses a fixed price for bunker fuel, calculated by taking an average of 380 CST fuel oil prices for the 12 months ending in the September of the prior year as assessed by LQM Petroleum Services.
In 2007-2008, the bunker fuel cost was assessed by LQM at $554.05/mt, up 68.53% from $328.75/mt in 2006-2007. The higher 2007-2008 period was one factor that led to average increases of around 38% in Worldscale's flat rates for 2009.
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A 39% decrease in the October to September LQM 380 CST assessment would equate to a bunker price of $337.95/mt.
As this pricing period again comes to an end, many in the market are beginning to discuss how this will affect Worldscale's 2010 flat rates.
Worldscale's calculations are based on a vessel capacity of 75,000 mt steaming at 14.5 knots and consuming 55 mt of fuel a day. The calculations also include time in port, a fixed hire element, port costs and any time in transit through canals.
Taking these variables into account as well as currency fluctuations, flat rates could drop 15%-25%, sources said.
"If I was to guess, I would say that we will see a fall of approximately 20%," said one charterer.
The effect that a decrease of 20% would have would have on a voyage from the West African Forcados terminal to the LOOP terminal in the US Gulf would be a fall of $4.26/mt from $21.28/mt to $17.02/mt.
One source at a clean tanker owner added that while rates will "logically" come off, he was not sure how much, as the dollar is weaker this year and port costs have gone up substantially."
For the 2008-2009 period, Rotterdam 380 CST prices averaged $311.15/mt, down 39.8% from the 2007-2008 period's $516.78/mt average, and back to levels last seen in 2006-2007, when 380 CST prices averaged $300.66/mt. (See related charts: Rotterdam 380 CST FOB ($/MT), 2007-2009)
The pricing scenario is the same in other global ports, with Houston seeing a 39.36% decrease over the past year and Singapore 380 CST a fall of 39.68%.
"If the market doesn't go up [by the end of the year], then it will be very difficult for the owners because the flat rate will change. This time the flat rate will come down very much," a chartering source with an Asian refiner said.
"While the average bunker price in Fujairah was $510/mt in 2008, it's down 40% in 2009 at $340/mt," the refiner added.
On the currency markets, the average euro/dollar exchange rate has fallen from 1.50397 to 1.35293 over the bunker pricing period. The yen and British pound have also dropped against the dollar from $107.7 and $1.97 to $95.27 and $1.55, respectively.
The tanker market should not have long to wait as LQM published the bunker price that will be used to calculate the 2009 Worldscale flat rates on October 3 last year.
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Chart: Houston 380 CST FOB ($/MT), 2007-2009