28 July 2011

Genco sees shipbreaking rising on high scrap prices/low freight:

Scrapping of dry bulk tonnage is set to rise further, stimulated by high ferrous scrap prices and a prolonged period of depressed freight rates, New York-listed dry bulk ship owner Genco Shipping & Trading forecast Wednesday.

Gerald Buchanan, president and CEO of Genco, told analysts on a second-quarter earnings call that Capesize demolition in 2011 could reach 100 vessels after 51 ships were scrapped in the first half of this year.

The company did not give any 2010 comparisons for Capesize demolition, but, according to Norwegian ship broker Fearnleys, only one ship was scrapped in the first half of last year and two in all of 2010.

Quoting statistics from Clarkson Research Services, he said that some 13.5 million dwt of all dry bulk carrier types had been scrapped so far this year compared with 5.7 million dwt in the whole of 2010.

He said the world Capesize fleet had grown by a net 75 vessels, taking account of 126 new deliveries and 51 deletions. At the end of June, the world Capesize fleet numbered 1,233 ships, up 6.5% from the 1,158 at end-2010. Overall, the world dry bulk carrier fleet, encompassing all size ranges, had seen net additions of 382 vessels. The world bulk carrier fleet numbered 8,536 ships at the end of June, up 4.7% from the 8,154 vessels at the end of December.

Buchanan noted that 18% of the world's dry bulk fleet is more than 25 years of age, while 24% of it is more than 20 years old. John Wobensmith, CFO at Genco, said that among the Capesize ships scrapped so far this year were vessels that were 18-20 years of age, which meant that shipowners were being "proactive" in addressing the supply/demand imbalance of ships.

"Scrapping will continue to play a significant role, especially if the freight rate environment remains depressed for a prolonged period," said Buchanan. "Scrapping is essentially an economic equation. It is our opinion that the current combination of high scrap steel prices and suppressed rates will support increased scrapping."

Wobensmith said the company expected to see a turnaround in freight rates in about 12-18 months, with a return to a supply/demand balance. "We base it on a slowdown of newbuild deliveries. Even more importantly, a lot of the expansion plans from the miners will be coming on stream, with a projected large push in 2012 and an even larger push in 2013, with 500 million [metric] tons of iron ore coming on stream over the next several years, which is more than half of what was shipped in 2010."

Buchanan said that public statements from the key mining groups pointed towards a 50.5% increase in seaborne iron ore capacity between 2010 and 2015, to 501 million mt.

Genco's Q2 Earnings Slide on Lower Freight Rates

On Tuesday, Genco reported second quarter net attributable income of $10.1 million, or 29 cents/share, down from $36.8 million ($1.16/share) a year earlier. The Q2 result, released after the New York Stock Exchange closed, beat analysts' expectations of around 24 cents/share.

Earnings fell because of lower freight rates, but revenues held up better, as a result of operating a larger fleet.
  • Genco's voyage revenues fell to $98.5 million in Q2 2011 from $105.3 million a year earlier.
  • The number of ships operated in Q2 was 60 compared with 40 in Q2  2010.
  • Time charter equivalent earnings per vessel fell to $18,299/day in Q2 from $30,405/day in Q2 2010.
In the first half of the year, net attributable income fell to $23.5 million, (67 cents/share) from $70.2 million ($2.24/share). But voyage revenues were flat at $199.1 million in Q2 2011 compared with $200 million a year earlier.

The company operated 60 ships in the first half of the year compared with 40 in the corresponding 2010 period. Average time-charter equivalent rates per ship fell to $18,720/day in the first half of 2011 from $30,326/day a year earlier.

Source: Platts. By Anthony Poole, anthony_poole@platts.com. 27 July 2011

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