The Asian Long Range II freight rate for moving naphtha on the Persian Gulf-to-Japan route is edging up close to the 100 Worldscale point mark due to the tightness in tonnage for the early August loading window, shipping sources tracking the market said Wednesday.
The PG-Japan LR2 rate has risen 16.5 Worldscale points since the start of the week and was assessed at w96.5 Wednesday. This increase in the LR2 freight level has drastically narrowed the spread against the Long Range I PG-Japan Worldscale rate from w17 on Monday to almost on par with the bigger ship, which is a rare situation in this market.
On April 14, the LR1 rate had fallen below that of LR2 with the smaller vessel priced at w93 and the bigger ship at w94, Platts data showed.
Platts assessed the LR1 PG-Japan rate Wednesday at w97.5, w1 above the LR2 freight.
“The LR2 market started to improve from last Friday when seven LR2s went on subjects. There is a gap in the position list for August 1-5 loading, so the cargoes that came in for early August loadings got caught,” said an LR shipowner source.
Both the Asian LR1 and LR2 tankers are currently seeing almost similar rate levels on fresh fixtures out of the Persian Gulf.
Among the latest deals reported, market participants said Samsung Total had placed the King Philippos, an LR2 vessel, on subjects for a PG-Japan voyage, loading August 3, at w96.5.
While on the LR1s, sources said Itochu placed the Hai Tun Zuo on subjects for a West Coast India-Japan voyage, loading July 25, at w96. Enoc had the Hong Ze Hu on subjects as a replacement job for a PG-Japan voyage, loading July 22, at w97.
Normally, the spread between the LR1 and LR2 PG-Japan Worldscale rates ranges w10-w15 points, market sources said.
“The LR2 tonnage is tight for the first half of August, so the next fixture could be higher, while the LR1 tonnage still needs a bit of cleaning up before we see a change,” said another shipowner source.
“The LR1 market has stayed flat because of heavy tonnage — I count up to 24 LR1s available for July loadings,” said a North Asia based charterer.
Sources said the Asian LR1s were not able to gain higher rates as fast as the LR2s, as shown by the recent fixtures, but the sentiment has improved due to the strength seen in the LR2 market.
Sources said that while charterers would prefer to use LR1s to lift naphtha cargoes on the PG-Japan route because of the decreased spread to the LR2 Worldscale rate, not all charterers are able to switch from LR2 size to LR1 cargo size on short notice.
“LR2 vessels available for July loadings have almost disappeared and traders are chartering for early-August. But vessels that are open from July would have to [take many waiting days], so owners are talking high rates in consideration of this. … Charterers will strategize how to fix LR2s now, some can fix LR1s instead because they have various stems being co-loaded,” a broker said.
“The LR2 market is very tight, and there are [limited] ships left, so charterers will have to pay more for vessels which are not opening naturally for their cargo laycan. The King Philippos will have to take about 10 waiting days as she is slated to open in Fujairah on July 25. I think w100 will be broken next, this [w96.5 fixture] has caught a lot of people by surprise,” said a LR2 shipowner source, referring to Samsung Total’s deal on the King Philippos.