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Bullish clean products market fails to translate into tanker earnings

Bullish clean products market fails to translate into tanker earnings
Owners of clean product carriers must be wondering why, if the products story is so apparently good, it is not translating to benefits on the water.

Average MR earnings this year have been far weaker than last year - around $9,500 a day so far, against more than $13,000 a day last year, according to Clarkson Research figures.

On the demand side, global seaborne products trade has been growing year-on-year since 2000 with a slight dip in 2012 - a three percent compound annual growth rate (CAGR) to 2003 for clean products, followed by an apparently spectacular six percent CAGR through 2013 according to New York marine services group McQuilling. Growth in the fleet has been relatively modest while the extraordinary expansion of products from the revitalised US refinery industry on the back of the shale oil revolution was supposed to underpin the products story.

In fact, a careful recent analysis by McQuilling shows that changes in clean product trades worldwide have actually destroyed demand for product tankers since 2010. If you look at product tanker demand in terms of ton-miles, a decade's rapid expansion ground to a halt from 2010. Looked at another way, average trade lengths have been falling globally since 2010. Average trade lengths for rest-of-the-world product trades fell precipitously from 2010 while product trade lengths from North America, of course, rose. Based on the growth in North American exports and the previous growth trend in overall demand, we should have seen a 127bn ton-mile increase in rest-of-the-world demand. In fact it has fallen by 36bn ton-miles, according to McQuilling.

Of course the worry will be that a now very large MR orderbook has been sparked by a faulty reading of the US product export explosion leading to a potentially greater imbalance in the market as demand growth fails to keep up with supply growth.