0812-701-5790 (Telkomsel) Marine Surveyor PT.Binaga Ocean Surveyor (BOS)

0812-701-5790 (Telkomsel) Marine Surveyor PT.Binaga Ocean Surveyor (BOS)

Tuesday, December 20, 2011

Oil Tankers to Extend Worst Rout in Four Decades on Glut: Freight Markets

Oil Tankers to Extend Worst Rout in Four Decades on Glut: Freight Markets

The biggest glut of crude tankers in a quarter century means at least another year of losses for Frontline Ltd. and Overseas Shipholding Group as the shipping market suffers its worst rout since the mid-1990s.
Rates from Saudi Arabia to Japan, the benchmark route, will rise 78 percent to average $15,000 a day in 2012, according to the median estimate in a Bloomberg survey of 10 investors, analysts and owners. While that would still be unprofitable for owners and investors in shipping companies, speculators can make money because forward freight agreements, traded by brokers and used to bet on future transport costs, are anticipating an average of $10,746 next year, from $8,449 in 2011.
“It’s still a terrible situation,” said Ole Stenhagen, the analyst at SEB Enskilda in Oslo whose recommendations on the shares of shipping firms returned 33 percent in the past two years. “People are hunkering down for a prolonged recession in the tanker market.”
Tankers ordered four years ago when rates reached $229,000 are still leaving yards, adding to the glut just as economic growth slows. The International Energy Agency cut its estimate for 2012 oil demand four times in as many months and predicts consumption will contract in North America and Europe for a second year. The six largest New York-listed tanker owners will report a combined loss of $1.1 billion in 2011 and $474 million next year, 44 analyst estimates compiled by Bloomberg show.
Maritime Routes
Returns for ship owners on the Saudi Arabia-to-Japan voyage averaged $8,449 a day this year, according to the London-based Baltic Exchange, which publishes freight costs along more than 50 maritime routes. Rates fell 46 percent to $14,272 since the start of January and were negative from August through October, implying that owners were paying clients to hire their vessels. Frontline, the biggest operator of supertankers, says it needs $30,200 to break even.
General Maritime Corp. (GMR), based in New York, filed for bankruptcy protection Nov. 17 and Hamilton, Bermuda-based Frontline said Dec. 6 it planned to split the company to avoid running out of cash. Overseas Shipholding, the biggest U.S. manager of the largest tankers, has reported losses for 10 consecutive quarters.
A second year of unprofitable rates would be the industry’s worst losing streak since the mid-1990s, according to Martin Stopford, the London-based managing director of Clarkson Research Services Ltd., part of the world’s biggest shipbroker. Losses were worse in the early 1980s, when earnings averaged about $5,000 a day, he said.
“The 1980s were a force-10 storm,” said Stopford, who is also a visiting professor at the Cass Business School in London. “What we’ve got today is a force six to force seven.”
Oil Demand
The fleet of supertankers, known in the industry as very large crude carriers, will expand 8.2 percent next year, Clarkson estimates. Global oil demand will advance 1.5 percent, according to the Paris-based IEA. The number of VLCCs jumped 13 percent to 560 since the end of 2007 and outstanding orders at ship yards are equal to 13 percent of existing capacity, Redhill, England-based IHS Fairplay estimates.
FFAs are traded by brokers including London-based Marex Spectron Group Ltd. and Simpson, Spence & Young Ltd. and also cover rates for vessels hauling coal and iron ore. The market was valued at $24 billion in 2010, according to the Baltic Exchange.
Rates may rebound more than anticipated in the Bloomberg survey should growth exceed economists’ forecasts. While the estimate compiled by Bloomberg from regional predictions is for a 2.47 percent expansion in the global economy next year, the International Monetary Fund is forecasting 4 percent.
Reduce the Glut
China will consume 5.3 percent more oil next year, almost four times the global pace, according to the IEA. The Asian nation is the biggest destination for VLCCs, according to ship- tracking data compiled by Bloomberg.
Scrapping could also reduce the glut. The difference between the price of a 15-year-old tanker and the value of its steel has narrowed to $6.77 million, close to the smallest spread in at least five years, according to data from Clarkson and Simpson, Spence & Young, the second-largest shipbroker. Owners may demolish 5 percent of the fleet within 18 months, the most in nine years, Clarkson Capital Markets LLC estimates.
Owners are also slowing ships to use less fuel, their biggest cost. The largest tankers sailed at an average of 10.24 knots in November, compared with 10.93 knots a year earlier, data compiled by Bloomberg show. Reduced speeds means ships take longer to return to compete for business, effectively cutting the fleet’s capacity.
Lower Speeds
The Baltic Exchange’s rates don’t take lower speeds into account and returns for owners may be higher than implied by the bourse’s assessment.
Frontline will lose a record $243.9 million this year and $108.28 million in 2012, according to the mean of 20 analyst estimates compiled by Bloomberg.
“On paper it looks like it will be a difficult year,” said Jens Martin Jensen, the Singapore-based chief executive officer of Frontline’s management unit.
Overseas Shipholding, based in New York, will report a loss of $213.2 million this year and $137.5 million in 2012, the mean of nine estimates shows.
The six-member Bloomberg Tanker Index, which includes Frontline and Overseas Shipholding, slumped 54 percent this year. The MSCI All-Country World Index of equities declined 13 percent and Treasuries returned 9.9 percent, a Bank of America Corp. index shows.
Manufactured Goods
The glut also extends to vessels hauling coal, iron ore and manufactured goods. The fleet of bulk carriers will grow 10 percent in 2012, compared with a 3 percent gain in cargo demand, according to Clarkson. Capacity on container ships will expand 8.6 percent as world trade advances 5.8 percent, data from Clarkson and the IMF show. About 90 percent of trade goes by sea, according to the Round Table of Shipping Associations.
Rates for capesizes, the largest ships used to haul coal and iron ore, averaged $15,409 this year, the lowest since 2002, according to the Baltic Exchange. The cost of shipping steel boxes to the U.S. West Coast from China, a benchmark route, fell 28 percent since the start of January, Clarkson data show.
Only about 78 percent of tankers will find work next year, compared with 82 percent of the dry bulk fleet, Morgan Stanley said in a Dec. 19 report. Tankers are making owners an average return of less than 0.1 percent, according to data from London- based Drewry Shipping Consultants Ltd.
The surplus is the largest since one that lasted from 1974 until 1985, said Andreas Vergottis, the Hong Kong-based research director at Tufton Oceanic Ltd., manager of the world’s largest shipping hedge fund. He expects 2012 rates to stay close to daily operating costs of about $12,000.
“Such low rates can exist for a brief period of time but they’re not sustainable at this current level,” said Nikhil Jain, a researcher at Drewry in Gurgaon, India. “The difficult period is not yet over. We’re just at the start of it.”
Source: bloomberg.com; Isaac Arnsdorf

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