Freight rates of LR2 product tankers are rising recently on tightening supply, according to market players, with a massive amount of naphtha flows from Europe to East Asia.
Clarksons Platou Securities estimated spot LR2 earnings at $16,300 per day on Thursday, up 19% from Wednesday’s level.
“There was a surge in freight levels from the Mediterranean to the Far East,” the Norwegian investment bank said in a note.
“Brokers report that tonnage availability of LR1[s] and LR2s is very tight.”
The lump-sum rate for shipping naphtha from the Mediterranean to East Asia on an LR2 was $2.3m as of Thursday afternoon, which is the highest since late September and up by almost $300,000 from 5 January, according to the Baltic Exchange.
Traders have been busy fixing large product tankers to lift European naphtha for eastbound shipments, with low demand in the West and the resumption of cracker operations in Japan and South Korea.
“The naphtha arbitrage economics seems to be working,” an Asian shipowner said.
Platts reported that three naphtha crackers are scheduled to restart in January following maintenance or expansion works, comprising Eneos’ Kawasaki plant, and two crackers owned by LG Chem and Yeochun NCC in Yeosu, respectively.
High demand
With firm production margins and high prices of rival feedstock propane, those plants are expected to require large quantities of naphtha in the coming weeks.
Kpler data shows 1.12m tonnes of European naphtha are due to be discharged in East Asia this month, the highest since June. About 76% of them are on LR2s and 21% on LR1s.
An analyst speaking anonymously said at least 2m tonnes of arbitrage naphtha will arrive in the region next month, composed of more than 1.5m tonnes from Europe and some from Peru and the US.
“February has a very big deficit, therefore attracting large amounts of arbitrage cargoes,” the analyst said, adding that the arbitrage window remains open for light naphtha despite the recent spike in freight rates.
“People are working on cargoes for arrival in the first half of March now.”
In other segments, spot MR earnings on the northwest Europe-US Atlantic coast route jumped by $2,522 to $5,162 per day on Thursday, the Baltic Exchange said.
The increase came as charterers returned to book some vessels for gasoline and diesel shipments from Europe, often for lifting on prompt dates, fixture data suggests.
“A busy day for fresh enquiry saw eight cargoes quoted publicly,” brokerage Howe Robinson Partners said. “Sentiment among owners was good.”
