Product tankers face short-term headwinds from dirty tanker competition: Norden

Product tanker markets are experiencing short-term downward pressure with more dirty tankers being used to transport refined products in recent weeks, while dry bulk freight rates remain well supported by healthy tonnage demand, Danish ship operator Norden said Aug. 8.

Since last month, dirty tankers up to VLCCs have been cleaned and used to ship diesel from the Middle East to Northwest Europe, with market participants seeking to take advantage of their lower unit freight cost.

The pivot has undercut demand for product tankers and led to weaker freight. Based on Platts data from S&P Global Commodity Insights, the LR2 rate for transporting 75,000 metric tons of refined products from the Persian Gulf to UK Continent fell to $53.47 per metric ton Aug. 8 from $74.20/t July 1.

While the sector remains supported by incremental ton-mile demand due to disruptions to Russian oil flows since the Ukraine war and Red Sea shipping crisis, Norden said in its quarterly report that "short-term headwinds from weak crude led to larger tankers switching from crude to clean trades."

But the Copenhagen-listed company added the negative effect should diminish, with dirty tankers' fundamentals supported by a small order book by historical standards and expected higher OPEC exports.

Despite a brief spike to $13.34/t on July 24, the Arab Gulf-China VLCC rate fell to $10.11/t Aug. 8 from $10.95/t July 1 amid seasonal demand weakness, according to Platts. VLCC rates tend to increase from early autumn.

Norden remains bullish on its freight outlook for dry bulk carriers, saying rates are supported by geopolitical disruptions, cargo growth and less competition from containerships.

"The dry cargo market continued the positive trend from the past quarters ... driven by solid demand growth, longer distances for iron import to China, diversions related to the situation around the Red Sea, and positive impact from the increase in container freight rates," the company said.

The Platts Global Dry Bulk Index time charter equivalent for non-scrubber ships was assessed at $18,962/d on Aug. 7, up from $11,189/d when the assessment started in November 2023.

Weaker margins

Norden, which operates 542 tankers and dry bulk carriers, reported its second-quarter revenue increased to $1.03 billion from $953 million in the year-ago period. But its net profit more than halved to $46 million from $108 million due to negative margins of its freight trading unit.

This resulted from "higher [dry bulk] charter costs from covering the short position from the first quarter, combined with higher voyage costs related to weather and ballast," the company said. "Margins were further impacted by costs related to new vessel charters and repositioning of tonnage on lower-paying back-haul voyages with expected future benefits."

Norden has narrowed its full-year guidance to a net profit between $160 million and $240 million from $150 million-$250 million previously.