The latest US sanctions imposed on six Chinese companies, including two subsidiaries of state-run shipping giant Cosco, are roiling the tanker markets as oil traders cancel bookings and chase swift new tonnage with spot rates for VLCCs leaping by more than 25% on Friday.
The US Department of Treasury blacklisted the six companies and their officials this week for allegedly violating US sanctions by transporting Iranian oil.
The Chinese government has expressed its opposition to the latest sanctions, accusing US of “bullying”.
“China firmly opposes the penalties against its companies and citizens, and has consistently disagreed with US implementation of unilateral sanctions. The US disregards the legitimate rights and interests of all parties and arbitrarily wields the stick of sanctions. It is a gross violation of the basic norms of international relations,” said Geng Shuang, spokesman for China’s foreign ministry.
“We urge the US to correct its wrongdoing,” Geng added.
A source in Dalian told Splash that the charter contracts of several oil tankers owned by Cosco Shipping Tanker Dalian have been cancelled by charterers and negotiations on some potential charters have also been suspended.
Cosco Shipping Energy Transportation, among the largest tanker operators in the world, called a temporary trading suspension on both the Hong Kong and Shanghai stock exchanges yesterday and the trading suspension was extended today.
The sanctions have also raised uncertainty among shippers on how to deal with cargoes that have already been loaded onto the vessels of sanctioned firms, which also include Kunlun Holdings, a tanker firm that expanded rapidly over the last couple of years with a strong focus on delivering Iranian crude to China.
A report by Alphatanker states that the tanker freight rates surged to their highest this year this week after the sanction was announced.
“Despite the US Office of Foreign Assets Control (OFAC) specifically stating that sanctions do not apply to these entities’ ultimate parent, Cosco Shipping Corporation, charterers have largely decided against using Cosco tonnage for impending voyages. This was evidenced overnight as a number of charterers with Cosco tonnage secured for prompt lifting decided to cancel these vessels and secure alternative tankers at significant premiums. This saw rates on TD3C climb from WS 60 on 25 September to WS76 by the morning of 26 September,” Alphatanker said in the report.
Clarkson data shows the sanctioned Cosco Shipping Tanker Dalian operates 26 tankers with a combined capacity capable of transporting 52m barrels of oil.
However, according to Alphatanker, the ownership and management of Cosco vessels is largely opaque with a large number of different entities controlled by parent company Cosco, which could lead charterers to shun all vessels connected to Cosco.
“If sanctioned Cosco entity-owned tankers are currently time chartered out it seems likely that these will be cancelled at the earliest opportunity. This will see these charterers re-enter the time charter market looking for alternative vessels, potentially pushing rates up,” Alphaliner added.
One Singapore broker today told Splash that within 24 hours Cosco’s tankers had turned “toxic” with a huge push-back from charterers in the wake of Washington’s blacklisting.
“For any company, being on OFAC’s black list is not only cumbersome – it will also make customers shy away from you. Customers doesn’t want to get entangled too, as a part of any collateral damage such a situation may bring around,” said Peter Sand, chief shipping analyst of BIMCO.
Rajesh Verma, tanker analyst at Drewry, reckons the US sanctions on Cosco is positive for the tanker market as it will move out vessels of the Cosco subsidiaries immediately, underpinning rates while the decision by Unipec, the trading arm of China’s top oil refiner Sinopec, to replace Cosco vessels immediately after sanctions suggests that oil trades and importers are unlikely to charter vessels of Cosco tankers due to the sanctions.
“The US sanctions on the Chinese company may escalate trade war between the two countries. In case of further escalation in the trade war, global economic growth will be affected, which in turn would hurt oil trade and tanker demand in the medium term,” Verma said.