Will New CIQ Regulations Impact the Market?

Drewry's latest Chemical Forecaster report highlights a disappointing start to 2013 for the chemical tanker market, despite hopes of seasonally higher demand and improved supply.

The impact of the new Chinese Inspection and Quarantine (CIQ) regulations imposed from the start of this year is of great interest to the market. During 2012, one major shipbroker estimated that only around 20% of the ships that loaded for China would have qualified as CIQ-acceptable space. China increased its stocks of oils and fats substantially in preparation. Around 4.5 million tonnes were reported to be in storage by early January, an increase of 1.1 million tonnes or 31% for the corresponding period in the previous year.

A record 960,000 tonnes of palm oil was imported in December 2012, but a healthy 480,000 tonnes of palm oil imported in January demonstrated that the regional markets are better served by dedicated tonnage than longer-haul trades.

Rapeseed oil imports into China were also impressive with 160,000 tonnes reported in January, persuading Canadian exporters to trim their usual volumes of land-transported product to the USA, and UAE exporters their burgeoning crush and oil export business to Europe.

There is likely to be an increasingly wide freight differential for full ships of soy oil from South America to China, as shipowners are less able to position by way of the Clean Petroleum Products (CPP) trade into South America. In the first quarter, only one in-house fixture was reported. Drewry anticipates that freight rates will be at least 20-25% higher than previous rates just to cover the loss of voyage earnings they enjoyed by combining with the CPP trade.

As a result of the new CIQ requirements, vegetable oil will have to move either in large dedicated ships committed to the acceptable list or travel as smaller parcel cargoes in whatever space can be offered on chemical tankers working cargoes to other Far East destinations. In 2012, a total of 48 ships from Brazil and Argentina included China as a destination. Of these, only 20% of the existing tonnage in the region would be CIQ-compliant, and the 40-45,000 IMO2 coated tankers currently serving on this trade route are likely to benefit and see an increase in freight rates for discharge into China.