Gasoline Shipping Profit Seen Rising 24% After Earthquake: Freight Markets
By - Mar 22, 2011 4:28 PM GMT+0700
Profit from shipping gasoline to the U.S. from Europe in the second quarter will rise 24 percent as disruptions to Japanese imports divert cargoes across the Atlantic, increasing demand for vessels.
Forward freight agreements, traded by brokers and used to hedge or bet on future transport rates, will rise to $14,000 a day on the route, from $11,252 yesterday, said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo. His recommendations on stocks of shipping lines returned 24 percent in the past six months, data compiled by Bloomberg show.
The March 11 earthquake and tsunami that battered Japan closed petrochemical plants that buy European naphtha, an oil product than can be converted into gasoline or used to make plastics. European refiners will need to find alternative markets while those plants remain shut, increasing demand and profit for vessels in the Atlantic Ocean at a time when earnings in most shipping markets are slumping.
“It’s highly likely that a surplus of gasoline or naphtha or both will develop in Europe,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by e-mail March 18. “Refiners will want to export as much of that as possible to the U.S. to support domestic margins.”
Japanese petrochemical plants use naphtha to make ethylene, a material for plastics, and about 22 percent of capacity was curbed by the March 11 disaster, according to Purvin & Gertz Inc., an energy consultant based in Houston. Japan is the second-biggest ethylene producer in Asia after China, data compiled by Bloomberg show. European naphtha shipments to Asia will probably slump by 78 percent to 100,000 metric tons this month, a Bloomberg survey of five traders showed.
Energy Consultant
“The outlook for naphtha is very bearish as six petchem plants are offline and much of the manufacturing activity at Sony, Toyota, Toshiba, etc., has been halted,” Richard Gorry, a director at Vienna-based JBC Energy GmbH, a consultant and researcher, said by phone March 18.
For European refineries, that means a glut of naphtha and one way of dealing with the surplus is to blend it into gasoline and then ship it to the U.S., the largest fuel market, according to Tchilinguirian.
Gasoline at New York Harbor cost as much as 6 percent more than in Europe yesterday, according to data compiled by Bloomberg. The spread is wide enough to allow traders to ship the fuel profitably across the Atlantic Ocean, according to RS Platou Markets AS and Pareto Securities AS, both Norwegian investment banks.
More Cargoes
More cargoes means more demand for the 590-foot tankers used on the route, operated by companies including Copenhagen- based Torm A/S, Europe’s biggest publicly traded oil-products shipping line. Mitsui O.S.K. Lines Ltd., based in Tokyo, and A.P. Moeller-Maersk A/S, headquartered in Copenhagen, also own the vessels, known as medium-range tankers.
Traders of freight forwards are already anticipating the surge in demand in the Atlantic, with second-quarter contracts jumping 8.8 percent on March 18, according to Imarex ASA, an Oslo-based broker of the derivatives.
Rental income on the route jumped 79 percent this year as demand strengthened, according to the Baltic Exchange in London, which publishes rates for more than 50 maritime routes. That beat the 6.6 percent advance in the Baltic Clean Tanker Index, a gauge of six different routes. Returns in the spot, or single voyage, market rose 1.1 percent to $14,607 a day yesterday, Baltic Exchange data show.
Volatile Rates
Rates are volatile, moving 10 percent or more in all but six of the last 31 months. They doubled in four of those months.
The improving returns on medium-range tankers contrasts with a decline for other parts of the merchant fleet. Income on capesizes, used to haul coal and iron ore, slumped 54 percent this year while returns for supertankers carrying crude fell 18 percent, Baltic Exchange data show. Container shipping costs climbed 26 percent, according to a gauge from the Hamburg Shipbrokers’ Association.
Naphtha and gasoline are part of the so-called light-end products derived from crude, accounting for about 35 percent of the total depending on the type of crude and the refinery used to process it, according to data compiled by Bloomberg.
Refineries produce naphtha when they process crude oil. This in turn is split into heavy and light naphtha. While the light variety is more commonly used by the petrochemicals industry, it can be blended into gasoline, said Mike Lazer, vice president of KBC Market Services, an adviser to the energy industry based in Walton-on-Thames, England. Heavy naphtha can be made into gasoline with the addition of high octane components that make it more combustible, he said.
Premium Demanded
As refineries and factories in Japan shut down this month, the premium demanded for naphtha in Asia relative to Europe fell to $13.97 a barrel so far this month from $15.21 last month, according to data from PVM Oil Associates Ltd., a London-based broker. The premium allows traders in Europe to pay for shipping costs and profit from sending cargoes to Asian customers.
European refiners are losing about $8 for each barrel of naphtha they make and earn about $5 for every barrel of gasoline, according to data compiled by Bloomberg.
More gasoline cargoes to the U.S. may mean more business for Torm, a company founded in 1889 that now operates a fleet of about 130 product tankers of various sizes, carrying everything from jet fuel to diesel. The shares slumped 21 percent this year and the company said March 10 it would probably report a third consecutive annual loss in 2011. Just three of the 12 analysts covering the company and tracked by Bloomberg rate it a “buy.”
Head of Tankers
Tina Revsbech, head of tankers at Torm, said it was too soon to say whether transatlantic cargoes would increase as a result of the events in Japan.
Global shipments of oil products, including naphtha, will advance 3 percent this year, according to data from Clarkson Research Services Ltd., part of the world’s largest shipbroker. The fleet will expand 9 percent to 114.9 million deadweight tons, a measure of carrying capacity, Clarkson estimates.
The prospects for earnings on at least one route may be better than that ratio suggests.
“The product tanker market is expected to move higher in the wake of the Japanese earthquake,” said Stavseth of Arctic Securities. “When Japan stops importing there’s an excess and it really shifts the trade volumes.”
To contact the reporters on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net
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