December 8, 2022

MRs lured East by record-high Chinese clean product exports will keep rates elevated

Chinese clean product exports hit a record high of 1.6 Mbd in November. Most of this was shipped on MRs, increasing demand by over 200% from September levels. Regional vessel supply has been insufficient and surging rates have helped pull in more vessels to service rampant demand. With the MR fleet more widely distributed, rates should stay elevated over the coming months.

In November, clean product exports from China averaged 1.6 Mbd, over 300 kbd above the previous record month back in March 2021. Of this, exports on MRs tipped 1 Mbd last month up 375 kbd m/m and 685 kbd compared with September, another record high.

The rise in exports on MRs has increased demand sharply. Last month 100 MRs loaded clean products from China compared with 33 in September, a 203% increase. The uptick quickly translated into higher freight, with rates from South Korea to Singapore (which is representative of the North Asian market) rising to $46/t, just shy of the record of $48/t.

Demand for LRs has also increased, but it has been significantly lower. The main reason for this is most exports have been shipped to South-East Asia, a route generally tended by MRs, but also because LR rates are also high, making using them on short-haul routes less economic.

The surge in MR demand has been greater than the supply of vessels in the region could accommodate, resulting in a draw of tonnage from outside the region. This has reversed an East to West trend which had predominated for most of the last 18 months.

From the start of 2021 until the fourth quarter, there was a net shift of clean MRs from East to West. The Mediterranean, Gulf of the Mexico and ARA attracted the bulk of tonnage, but there was also a large increase in the number of MRs operating in the North East Pacific Ocean or US West Coast, Many of these were serving West Coast Mexico ports. This was triggered by a slump in Chinese exports from March 2021 onwards following changes to their environmental agenda which saw a shift in focus away from product exports.

But in Q4, there has been a notable shift compared with 3Q, with reductions in the count West of Suez, particularly in the regions where there had been substantial builds. In their place, we have seen increases in the Eastern China Sea.

Change in count of clean MRs by key regions

Source: Kpler

Over a shorter time frame, the effect is larger. When comparing December with early September, the number of MRs operating in the Eastern China Sea has increased by nearly 30. The rapid increase in exports means this influx has been easily absorbed, with more expected to be required.

By reducing tonnage supply in Europe and the US Gulf, rates there are also being supported. Adding to the mix have been higher exports from the US Gulf in the last few weeks. This has helped lift MR rates from the US Gulf further.

The collective effect of higher exports from China and elsewhere lifted MR ton-miles to 148 Bn in November, the highest month in five years. Chinese exports have helped spread the MR fleet, which will mean rates in all regions should see upside support into 1Q23.

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