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Persian Gulf to Japan LR1/LR2 freight spread narrows to 6-month low
A steadily narrowing spread between the Long Range 1 and 2 tankers for the benchmark Persian Gulf to Japan route, which has reached its lowest for six months at 4.5 Worldscale points, is prompting charterers to switch to the smaller LR1 ship for moving naphtha cargoes, sources said Tuesday.
The LR1 PG-Japan rate was assessed Tuesday at w102, basis 55,000 mt, and the LR2 PG-Japan rate was assessed at w97.5, basis 75,000 mt. The corresponding freights per metric ton are $28.29/mt and $27.05/mt respectively.
LR1 and LR2 PG-Japan freight was last assessed at par on November 20 2012, when charterers had to pay w130, or $35.23/mt. On October 22 last year, the spread between the two segments was w3.
"It is an interesting dynamic, the LR2s are very tight and the LR1s are oversupplied on tonnage. The Worldscale rate for LR2 PG-Japan can trade at a premium to LR1 PG-Japan for short periods of time and I think it may in fact do so this time around," said a chartering source with a Western trading house.
"Traders will start to buy naphtha in 55,000 mt parcels to take advantage of the relatively cheaper LR1s for May dates, so the market will correct in the medium term," the chartering source added.
The combination of thin LR2 tanker availability and long tonnage on the Asian LR1s saw the gap close over the last three weeks to reach only 4.5 Worldscale points apart for the PG-Japan route Tuesday.
"LR1 sentiment is not great, but we have expectations that more cargoes will be shown to LR1s since LR2 tonnage is cleared out, and the gap between the LR PG-Japan freight is so narrow that LR1s must be a lot more attractive to charterers again," said an LR1 shipowner.
"Charterers will need some time to switch their programs, possibly a week or 10 days. So that means the shifting of use from LR2 to LR1s will be found next week, and the spread will be narrower and could be the same in the short term for LR1 and LR2 PG-Japan before the unnatural differential will be corrected," said a North Asia-based charterer.
However, a clean ship broker tracking the LR markets said the spread would soon start to diverge, with most of the end-April LR2 stems covered. He added that activity would now move on to the LR1 segment, which is currently oversupplied.
Source: Platts
The LR1 PG-Japan rate was assessed Tuesday at w102, basis 55,000 mt, and the LR2 PG-Japan rate was assessed at w97.5, basis 75,000 mt. The corresponding freights per metric ton are $28.29/mt and $27.05/mt respectively.
LR1 and LR2 PG-Japan freight was last assessed at par on November 20 2012, when charterers had to pay w130, or $35.23/mt. On October 22 last year, the spread between the two segments was w3.
"It is an interesting dynamic, the LR2s are very tight and the LR1s are oversupplied on tonnage. The Worldscale rate for LR2 PG-Japan can trade at a premium to LR1 PG-Japan for short periods of time and I think it may in fact do so this time around," said a chartering source with a Western trading house.
"Traders will start to buy naphtha in 55,000 mt parcels to take advantage of the relatively cheaper LR1s for May dates, so the market will correct in the medium term," the chartering source added.
The combination of thin LR2 tanker availability and long tonnage on the Asian LR1s saw the gap close over the last three weeks to reach only 4.5 Worldscale points apart for the PG-Japan route Tuesday.
"LR1 sentiment is not great, but we have expectations that more cargoes will be shown to LR1s since LR2 tonnage is cleared out, and the gap between the LR PG-Japan freight is so narrow that LR1s must be a lot more attractive to charterers again," said an LR1 shipowner.
"Charterers will need some time to switch their programs, possibly a week or 10 days. So that means the shifting of use from LR2 to LR1s will be found next week, and the spread will be narrower and could be the same in the short term for LR1 and LR2 PG-Japan before the unnatural differential will be corrected," said a North Asia-based charterer.
However, a clean ship broker tracking the LR markets said the spread would soon start to diverge, with most of the end-April LR2 stems covered. He added that activity would now move on to the LR1 segment, which is currently oversupplied.
Source: Platts
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