Frontline Ltd. (FRO), the
oil-tanker company led by billionaire John Fredriksen, urged shipowners to
scrap crude carriers that are more than 15 years old to help reduce an excess
of the vessels.
Unless the market improves,
Frontline is unlikely to make the investment required to keep two tankers in
service before a special survey of the vessels scheduled for this year, the
Oslo-based company said in a statement today. Frontline also reported its fifth
straight quarterly net loss. The stock declined as much as 11 percent in Oslo
trading.
The tanker market is “massively
oversupplied,” said Frontline, which split in two in December 2011 to avoid
running out of cash amid the lowest rates since 1999. Ships are losing $1,795 a
day on the benchmark Saudi Arabia-to-Japan voyage, according to the Baltic
Exchange in London. Still, speculation about a rebound may deter owners from
demolishing older vessels, said Dag Kilen, an analyst at Fearnley Consultants A/S
in Oslo.
“We expect a recovery in the
market by 2015, so if you have tankers aged 15 by the turn of 2014, you will
wait before scrapping,” he said today by phone. Demolition of vessels aged
above 15 years “is more something that Frontline hopes for,” Kilen said.
Vessels are required by so-called
classification societies that oversee industry safety and standards to undergo
a special survey every five years for a check of elements including structure,
according to London-based shipbroker ICAP Shipping International Ltd.
“If similar decisions are taken
by other owners, it is likely to reduce the oversupply in the tanker market,”
Frontline said after opting against investing in the two ships.
Shares Drop
Frontline fell 9.2 percent to
15.70 kroner by 12:05 p.m. in Oslo trading, reducing the company’s market value
to 1.23 billion kroner ($204.2 million). The stock is down 15 percent this
year, rebounding from a slump of as much as 46 percent at the 2013 low in May.
The net loss widened to $120.3
million, or $1.54 a share, in the second quarter from $24.3 million, or 31
cents, a year earlier, the statement showed. Revenue dropped 26 percent to
$121.2 million.
Frontline said its very large
crude carriers need a daily return of about $25,000 for the rest of 2013 to
break even in terms of average total cash costs. Each of the ships can hold 2
million barrels of oil. Suezmax ships carrying half as much cargo need $19,000
a day, the company said.
Source: Business Week. 28 August
2013
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