Dirty freight market report: TD25, TD20 & TD3c RBI and market analysis

USGC Afras and WAF Suezes are overpriced vs competition for crude delivery into NWE. AG VLCCs are materially undervalued vs their competition for crude delivery into China.

Commentary summary:

The Sparta RBI (relative basket index) compares the route in question against all material relevant global competing routes delivering crude grades into the same destination.

It provides an under/overvalued signal and is a leading indicator for freight demand and FFA price action.

• TD25 is overvalued vs competition therefore USGC Afra demand could start to decrease. USGC prompt tonnage is tight though and 10-day ahead supply is 6 vessels below the 90-day trailing avg. Keep a look out for USTR related Chinese built ship US retaliatory port fees though.

• TD20 remains overvalued vs competition. The degree of overvaluation continues to trend towards neutral though. 10-day ahead WAF tonnage supply is tight with 4 vessels fewer than the 90-day avg.

• TD3c is undervalued vs competition and moved materially more undervalued over the last two weeks.

TD25 has been rallying since the beginning of March. It entered overvalued territory three weeks ago and the rally is now starting to show signs of fatigue.

Prompt tonnage is still tight though with only one vessel available in the 5-day ahead window and supply in the 10-day ahead window is 6 ships below the 90-day trailing avg.

Afra rates are strengthening in the Med and rates are steady in UKC. This could limit some USGC ballasting. Even though Afra supply remains relatively tight in the USGC TD25 rates likely churn sideways over the next week.

If 3rd decade April starts to show increased avails then TD25 likely quickly weakens as other crude load origin zones are already pricing better into NWE.

The wrench in this fundamental analysis is the potential for a rumored April 17th USTR announcement regarding Chinese ship US port fees spiking to $1.5mil.

This would immediately put a premium on non-Chinese built vessels and create a two-tier market. It should strengthen rates in the Atlantic and weaken rates in the East.

(TD25 M01 price & RBI analysis)

TD20 RBI has been trending / churning back towards neutral for close to a month now. TD20 prices have remained supported during the same period as tonnage in the 10-day ahead period has remained below the 90-day trailing average of 7 vessels since the middle of February.

Given the volatile, but sustained, trend lower in TD20 RBI, the fact that Afras out of the USGC are currently more overvalued than WAF Suezes and WAF demand continues to reliably absorb tonnage then May TD20 at 85 WS looks undervalued to spot. May should roll up and narrow some of the 20 WS point spread to spot.

(TD20 M01 price & RBI analysis)

TD3c is now materially undervalued vs the competition for crude delivery into China. Q2 TD3 curve is flat at 54 WS and Q3 is only 6 WS points backward.

Given the concern over the Chinese economy the weakness in TD3 is reasonable, but this same weakness has made it the more attractive crude load origin.

If the trade war gets worse then there is more room for downside, but otherwise there should be some bottoming in rates.

(TD3c M01 price & RBI analysis)

TD22 Analysis is coming out next week. Stay tuned.