Thursday, March 17, 2011

Japan disaster brings more pain to already beleaguered tanker markets

Last spring a year ago, the window opened for the Crude Carriers (NYSE: CRU) and Scorpio (NASDAQ: STNG) IPO's as well as the General Maritime (NYSE: GMR) capital raise for the fateful Metrostar block deal. This proved for investors (and especially for Genmar) disastrous timing. Now the Japanese tragedy is like to take an already ailing market a further notch down, creating potential distress conditions for overstretched tanker operators like Genmar, whose shares recently plunged 20%.

Six Japanese refineries are closed as a result of Friday’s devastating earthquake and the power shutdown of nuclear facilities threatened by meltdown. Of the crude on the water and destined for Japan at present, much of this may get resold, which may have a further effect on the crude price.

There could be woe for the long-range LR1 and LR2 products tanker markets with Japan unable to keep up its large naphtha imports with the Japanese productive capacity immobilized from lack of energy resources and the physical destruction from the earthquake.

Of the six refineries – two JX Nippon plants in Sendai and Negishi, Kashima Oil in Kashima, Cosmo Oil and Kyokuto Petroleum in Chiba and TonenGeneral Sekiyu in Kawasakim - all but the last are yet to have a restart date.

If the refineries are shut for for a prolonged period, all diesel exports to Southeast Asia, Europe and the western coast of South America will stop altogether and there will be a trade rebalancing with diesel sourced from India and the Middle East. Japan will become a net importer of gasoline with South Korean and Indian refineries benefitting.

The trade rebalancing will also affect other shipping sectors like containers and dry cargo.

It will be interesting to see what happens with time chartered vessels and whether contracts will be subject to renegotiation as Charterers face the stress of declined cargo volume and trade rebalancing.

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