August 8th, 2014
The flexibility of coated Aframaxes (LR2s) has the ability to change this sector’s supply balance.
With around 27.5% of the Aframax fleet being coated, owners have the option to switch to clean trades when market conditions dictate. The two classes are therefore inextricably linked, said EA Gibson in a report.
Last year, around 40 LR2s operating in dirty trades switched to clean trading as the market improved for this sector.
Since then, the spot Aframax market saw a few spikes, the latest of which pushed rates up from $15,000 per day in June of this year to $18,000 per day last month for 12 months’ time charters.
Apart from this particular spike, there has been little difference in the earnings of both categories thus far this year. Another positive development in this sector was the increase in long haul cargoes out of the Baltic and North Sea loading areas.
In recent years, there has been a fall in Aframax demand, especially out of North Africa and as a result they have fallen out of favor as standalone units, Gibson said. However, forecasts suggest a longer haul LR2 market and there has been considerable investment in this sector.
With additional costs of around $2.5 mill to coat a vessel, owners have taken this option. Currently, there are 104 Aframaxes on order of which 66 are coated.
One of the advantages of Aframaxes is their trading flexibility in terms of where they can operate.
This sector is favor by operators, such as Navig8 and Scorpio who have a number in their fleets. For example, Navig8 currently operates seven LR2s, which will rise to 25 once their new buildings come on stream. In addition the company operates 24 dirty Aframaxes.
Scorpio has nine LR2s operating with another 11 on order.
Overall, the Aframax LR2 fleet is relatively modern with two thirds of the vessels delivered in the past 10 years. However, there are 198 vessels of between 11 and 15 years of age and a further 124, which are more than 15years old.
If demand for LR2s grow as expected, the future looks somewhat brighter for Aframaxes, but not if the coated vessels trade in the dirty market.
It is interesting to note that some players have recently targeted this sector, most notably Eastern Pacific who recently purchased six Aframaxes from Blenheim Shipping, all of which were built between 2003 and 2012, Gibson concluded.