Key Asian LR2 PG-Japan freight reaches W100 for first time in 2015

Strong demand and tight vessel supply caused Asian Long Range 2 freight rise to Worldscale 100 points to lift naphtha for the key Persian Gulf-Japan route, market sources said.

Platts assessed the LR2 PG-Japan freight on the deal at w100, a w20 leap from last Wednesday.

“Owners obtained w100 for LR2 PG-Japan and the market is very tight for ships. Tonnage into the second decade is quite thin and uncertain so I expect LR2 rates to continue trending upwards,” a north Asia-based charterer said.

Socar placed the Megalonissos on subjects for a PG-Japan voyage, loading February 19, at w100, market sources said

Marubeni had also placed the Ocean Tiara on subjects for a PG-Japan voyage, loading February 20, at w100, a source familiar with the matter said.

The wide premium of LR1 to LR2 PG-Japan freight was a significant factor in the strong demand for LR2s, sources said. Usually the premium is w15-20, they added.

Charterers take advantage of the changes in this spread to obtain the most economic cost per barrel to move cargoes on either LR1 or LR2 tankers.

The LR1 to LR2 PG-Japan premium over w30 points for 13 out of 19 assessment days so far this year, hitting w37.5 earlier this month, Platts data showed.

The Asian LR1 PG-Japan rate was assessed up w0.5 on the day at w118 Wednesday, narrowing the premium to w18.

Sources differed on whether the jump in LR2 rates would mean a lot of naphtha cargoes being moved on LR1s.

“I don’t think charterers can shift that quickly back to LR1s. So we will see natural LR1 stems come up, but most charterers have arranged to lift naphtha on LR2s instead of LR1s for February loadings,” an LR shipowner source said.

“In February its physically tough to find LR2s, even from mid-February onwards, so now the shift to using LR1s has just started and this movement is making the LR1 market gradually stronger,” a Singapore-based charterer said.

Market participants said that the LR2 market was likely to remain supported this week, with LR2 cargoes for loading in the third 10 days of February already seen.