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LONDON—Oil prices that generated record shipping fees
for Frontline Ltd. and the rest of the tanker industry
may reduce corporate earnings as demand growth slows and
a new armada enters the market.
Frontline, the world’s biggest oil shipper, led the
five-member Bloomberg tanker index to its best quarter
in almost four years. Now the industry will contend with
a 15-percent drop in rental rates in the second half, a
Bloomberg survey of 13 analysts and brokers showed.
Earnings
will weaken because of a fleet expansion that the
International Energy Agency (IEA) says will “massively”
exceed growth in cargoes over the next two years. The
increase in vessels will combine with the slowest growth
in oil demand for six years as the global economy loses
steam, driving tanker rates 65 percent lower by 2010,
futures contracts show.
“Industries are having a tough time and consumption must
go down,” said Per Mansson, a managing director at ship
broker Nor Ocean Stockholm AB and an executive at
Frontline until about a year after it was bought by
Norwegian billionaire John Fredriksen in 1996. “We can’t
live in this protected environment in shipping forever.”
Only
seven of 17 analysts, or 41 percent, say investors
should buy shares of Bermuda-based Frontline, according
to data compiled by Bloomberg. The stock gained 25
percent to 322.5 kroner ($63.51) in Oslo trading so far
this year.
“We
still see a very strong tanker market for the next one
or two months, but then there are concerns down the
road, over the next three to six months,” said Billy
Chiu, commercial director at BW Shipping Managers Pte.
in Singapore, a unit of the world’s largest private
owner of supertankers. Record oil is “the fundamental”
threat to vessel demand, he said.
The
tanker fleet’s capacity will increase 18 percent to 432
million tons of oil by the end of 2010, according to
London-based ship broker Simpson, Spence & Young Ltd.,
whose data is used by the IEA for shipping analysis. Oil
demand will expand 2.7 percent during that time to 89.2
million barrels a day, the Paris-based IEA said July 1.
Frontline expects less growth in capacity. Jens Martin
Jensen, interim chief executive officer, told investors
May 22 that 120 so-called very large crude carriers
would join the fleet, while about 100 single-hull ships
are phased out because they don’t meet new standards of
environmental protection.
“We will
actually see a rather undramatic fleet growth,” he said.
Profits
from supertankers, which are bigger than the Chrysler
building and haul about a fifth of the world’s oil, will
drop 15 percent to $100,000 a day in the second half,
based on the median estimate from the 13 analysts and
brokers. In 2010, rates will plunge to about $67,000 a
day, according to data from Imarex ASA in Oslo, a
freight-derivatives brokerage.
The
number of ships competing for cargoes may also swell in
the next two months because Iran, Opec’s second-largest
oil producer, is freeing up supertankers that it’s using
to store crude in the Persian Gulf, Chiu said.
The
National Iranian Tanker Co. cut the number of idling
ships to 11 from 15 in the last two weeks, Bloomberg
data show.
Use of
vessels for storage helped tanker rates more than triple
since April, delivering rental income of almost $196,000
a day for Frontline, Overseas Shipholding Group Inc. and
Euronav NV, according to prices from London’s Baltic
Exchange and a formula from Oslo-based ship broker RS
Platou A/S.
There
are 60 supertankers available for hire in the next 30
days, up from 48 a month ago, estimates broker Barry
Rogliano Salles in Paris.
To be
sure, the Organization of Petroleum Exporting Countries
(Opec) is pumping more than ever before, bolstering
demand for ships, Bloomberg estimates show.
“All the
extra oil that comes out of the ground will go to Asia,”
said Andreas Vergottis, research director at Tufton
Oceanic Ltd., the world’s largest shipping hedge fund.
Tanker
firms will still be earning more than in the last
several years. The average cost of sending supertankers
from the Persian Gulf to Japan was about $46,000 a day
from 1998 to 2007, according to Drewry Shipping
Consultants Ltd. Rates will average a record $107,000 a
day in 2008, Bloomberg’s survey shows.
The
market will also be buoyed by more demand for
double-hull tankers from Asia, spurred by the puncturing
of the Hebei Spirit in December, the worst oil spill in
South Korea’s history.
Single-hull tankers will be banned globally from 2010.
As many as 43, or almost 10 percent of the fleet, have
been sent for conversion either into commodity carriers,
oil-storage ships or double-hulled crude transporters
since the start of 2007, according to Lloyd’s Register-Fairplay.
Demand
for tankers in Asia may weaken after China raised its
fuel prices by a record 18 percent last month, said Mark
Jenkins, an analyst at Simpson, Spence & Young.
In the
US, the largest energy user, the almost doubling of
jet-fuel costs in a year led to the failure of at least
a dozen airlines in the past six months, grounding
planes.
“We’ve
moved into a completely different ballgame as far as
demand is concerned,” said Martin Stopford, a
London-based executive director at Clarkson Plc., the
world’s biggest ship broker. “There’s enough evidence
coming through to suggest we are going to see a stronger
response to this particular hike than previous ones.”
(Bloomberg) |
