Naphtha trade gets some summer love

It hasn’t been such an exciting summer for those in clean tankers – spot rates have stayed low and rela-tively flat across the board. Period rates have been more consistent, although deals have been few.


One of the bright spots has been the naphtha trade, for which LR2 spot rates have seen a con-sistent rally since June 28.
On Thursday, the Baltic added an extra $32,143 to its Mediterranean-Far East benchmark rate for 80,000-tonne naphtha car-goes,
which it assessed at a lump-sum rate of $1,864,286. This is the highest level seen since late March and is due to tight availability
of vessels in the Med and few cargoes in the region.

Reports from the spot market said the LR2 Minerva Aries was this week fixed on subjects to Trafigura for a lump sum of $2.0m,
loading naphtha in Tuapse in late July for discharge in Japan. Tuapse usually commands a $200,000 premium over loading in the Med.

Western naphtha has been making its way increas-ingly to Asia. Buyers there are building their invento-ries as the price differential widens between Eastern
naphtha and cheaper product from the West. Ac-cording to Platts, around 1.2m to 1.3m tonnes of Eu-ropean naphtha is expected to arrive in Asia in July –
around the same level as seen in June, and almost 20% more than the year-to-date monthly average of 1.02m tonnes. This is expected to result in a few less
cargoes making their way East on the bench-mark Middle East Gulf-Japan route, which could pressure LR tanker rates in the third quarter.

However (in shipping these days there is always a “however”), while Japan has provided steady de-mand for cheaper Western naphtha, Chinese im-ports are falling
due to increased domestic production. Chinese imports of the product fell by 22.2% year-on-year to 154,000 bpd between January and May this year, and are likely
to continue falling dur-ing the third quarter. India has also stepped up its naphtha production, which could displace future cargoes coming from the Med.

Market Conclusion: Any increase in LR2 rates could push spot charterers to opt for cheaper LR1 vessels, or even MR tankers to pick up prompt cargoes.

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