Mitsui Sells Newest Double-Hulled Supertanker to Be Scrapped:

Dec. 5 (Bloomberg) -- Mitsui O.S.K. Lines Ltd., owner of the world’s largest shipping fleet, sold a double-hulled supertanker for demolition that would be the newest such ship ever scrapped after vessel earnings plunged this year.

The Atlantic Liberty, built in 1995, is the youngest very large crude carrier to face demolition, data from Clarkson Research Services, a unit of the world’s biggest shipbroker, show. The tanker will be the world’s second VLCC with a double hull to be scrapped, Nafees Zaman, a spokesman for Maryland, U.S.-based Global Marketing Systems Inc. said. GMS is the biggest cash buyer of vessels for demolition.

An oversupply of the tankers and falling demand growth is driving earnings for VLCCs to the lowest in more than 14 years, pushing prices for tankers older than 15 years 38% lower over the year.

“It’s positive for the market balance to see medium-old tonnage disappear like this,” Petter Narvestad, an analyst at Fondsfinans ASA, an Oslo-based investment bank, said by phone today. “Tankers normally have a lifetime of about 25 years.”

The price paid for the Atlantic Liberty equated to $20.1 million, HSBC Shipping Services Ltd. said in an e-mailed report Dec. 2. A 15-year-old VLCC is worth $20.2 million, according to Seasure Shipping Ltd, a London-based shipbroker that assesses vessel values. That’s down from $32.4 million on Dec. 31.

The scrapping of the Atlantic Liberty meant the owners took a “pragmatic, and arguably courageous decision to take a hit on the price, as opposed to the risk of facing her as competition for cargo in the future, under different ownership,” Clarkson said in a weekly report published Dec. 3. Tokyo-based Mitsui didn’t respond to three phone calls and 2 e-mails seeking comment.

Too Many Vessels:

The sale highlights the struggle facing vessels more than 15 years old to trade profitably, London-based shipbroker Galbraith’s said in a weekly report on Dec. 2. Galbraith’s, Clarkson and HSBC Shipping all reported the sale, saying the vessel will be broken up in India.

Tanker owners ordered too many new vessels during a 4-year boom that lasted to 2008, creating an oversupply that’s depressed returns and ship prices as global demand growth for crude weakens.

Returns for VLCCs will average $15,000 a day for the next 2 years, less than half of the $34,500 they need to break even, Pareto Securities ASA said in a report in October. Average earnings for the vessels, which peaked in 2004 at $97,000 and were at $93,000 four years later, fell to $19,000 by 2011, according to the Oslo-based investment bank.

The first double-hull VLCC scrapped, the 1991-built D Elephant, was sold in May, Zaman said by e-mail.

--With assistance from Alaric Nightingale in London and Chris Cooper in Tokyo. Editors: John Deane, Claudia Carpenter

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

Source: Bloomberg Businessweek. By Michelle Wiese Bockmann. 6 December 2011

http://www.businessweek.com/news/2011-12-06/mitsui-sells-newest-double-hulled-supertanker-to-be-scrapped.html

Oil-Tanker Rates Seen Rising as Scrap Values Speed Up Demolitions: Freight

Oil-tanker companies may demolish the most ships since 2003, lifting charter rates from their lowest in at least 14 years, as values of older vessels trade 36% above the price of scrap.

The cost of 15-year-old tankers fell 48% to $23.5 million this year as scrap values advanced 3% to $17.25 million, the narrowest gap in at least 5 years, according to data from the world’s 2 largest shipbrokers. Owners may break up 5% of the fleet within 18 months, the most in 9 years, said Michael Pak, an analyst at Clarkson Capital Markets LLC in Houston.

While scrapping would reduce the glut and raise rates, it won’t be enough to make ships profitable. Freight derivatives, traded by brokers and used to bet on future rates, anticipate a 68% jump to $12,817 a day in 2013 compared with the average so far this year. That’s still 43% of what Frontline Ltd., the biggest operator, says it needs to cover costs. 16 months of unprofitable charters and falling ship values are lowering expectations from as recently as 3 months ago, when analysts anticipated fewer demolitions.

“Owners’ perceptions are changing as we speak,” said Charlie Fowle, chairman of London-based shipbroker Galbraith’s Ltd. “Even those who are more bullish will think it’s not worth buying 15-year-old ships if this market continues.”

Owners scrapped 8%of the very large crude carrier fleet in 2003, according to Clarkson Research Services Ltd., a unit of Clarkson Plc, the world’s biggest shipbroker. Rates surged 87%to $98,323 the following year, its data show.

Crude Carriers:

Single-voyage rates for very large crude carriers, hauling about 20% of the world’s oil, averaged $7,627 a day this year, compared with $32,006 in 2010, according to the London- based Baltic Exchange, which publishes costs along more than 50 maritime routes. Rates settled at $12,200 yesterday. Longer-term contracts are also unprofitable, with a 15-year-old tanker earning $16,000 a day on a one-year accord, according to London- based Clarkson.

Vessels in service since 1996 or earlier comprise 14% of the global fleet, which expanded 11 percent to 554 ships since the end of 2008, according to data from Redhill, England-based IHS Fairplay. Owners ordered the most new vessels in 4 decades in 2007 and 2008, when returns in the spot market were 14 times higher than now. Hamilton, Bermuda-based Frontline will report its 1st annual loss in 9 years for 2011, analyst estimates compiled by Bloomberg show.

Double Hulls:

Owners will probably start demolishing older double-hulled tankers before the end of this year, said Jens Martin Jensen, the Singapore-based chief executive officer of Frontline’s management unit. It would be the first time for the vessels, built with an extra layer of steel to reduce the risk of spills, according to IHS Fairplay. Frontline’s fleet includes three double-hulled tankers built in 1995.

Scrapping may be postponed should earnings improve. Daily rates on the benchmark route to Japan from Saudi Arabia jumped 19-fold to $10,479 last week after oil companies and traders booked the most tankers to load Persian Gulf cargoes in at least 7 years, according to data from Galbraith’s. That’s 65% below Frontline’s break-even level.

China’s economy accounts for about 10% of oil consumption and will expand 9% next year, or more than twice the speed of global growth, according to the International Monetary Fund. World crude demand will rise by about 1.3 million barrels to 90.5 million barrels a day in 2012, the Paris-based International Energy Agency estimates. The gain is equal to about 237 additional cargoes for the largest tankers.

Vessel Speeds:

Rising returns may encourage shipping companies to sail faster, effectively increasing the number of ships competing for business. The average VLCC is proceeding at 10.4 knots, compared with as much as 12.2 knots in 2008, according to data compiled by Bloomberg. Owners cut speeds when rates decline to limit fuel costs.

Freight derivatives indicate the past week’s gains won’t be sustained. While the December contract trades at $15,117 a day, 24% more than now, rates are projected to decline for the next few months to $8,245 by April, according to data from Marex Spectron Group, a London-based broker of the contracts.

The slump in tankers is being mirrored in ships carrying other commodities and manufactured goods. Daily rates for capesizes, hauling iron ore and coal, averaged $13,839 this year, below the $20,000 they need to break even, Baltic Exchange data showed. An index reflecting charges for 6 types of containers fell 38% since the start of April, data from the Hamburg Shipbrokers’ Association showed.

Frontline Stock:

Shares of Frontline slumped 77% this year in Oslo, reducing its market value to 2.66 billion kroner ($466 million) from 27.7 billion kroner in June 2008. The company will report a net loss of $112.7 million for this year, the worst result since at least 1996, according to the mean of 19 analyst estimates compiled by Bloomberg. The MSCI All-Country World Index of equities retreated 8.1% since the start of January.

Double-hulled tankers that were 15 years old were sold for as much as $114 million in 2008, according to data from London- based Simpson, Spence & Young Ltd., the second-largest shipbroker. The incentive to demolish the ships now may be higher than suggested by the narrowing premium to scrap.

Clarkson’s assessment of the demolition value is based on single-hulled tankers. Those with double hulls would be worth more because they yield more steel, said Calum Kennedy, an analyst at the shipbroker’s research unit in London. The vessels also need surveys of seaworthiness every five years, which can cost $1 million to $2 million, potentially adding to costs for buyers of older transports, said Pak in Houston.

Tanker Scrapping:

Bangladesh handled 78% of all crude and oil-product tanker scrapping in 2009, followed by Pakistan with 10% and China with 8%, according to the latest data from the United Nations Conference on Trade and Development.

Anyone buying an older tanker may also have more difficulty in winning cargoes. Oil companies are increasingly favoring newer vessels, which tend to be better maintained, said Per Mansson, the managing director of Norocean Stockholm AB, a shipbroker in the Swedish capital.

“Owners have a challenging economic decision ahead of them,” said Pak. “If your view is that we are going to be in this situation for the next couple of years, if your horizon is a two- to three-year outlook of depressed earnings, the decision becomes more and more compelling to scrap the ship.”

To contact the reporter on this story: Alaric Nightingale in London at anightingal1@bloomberg.net

Source: Bloomberg.com. By Alaric Nightingale 15 November 2011

http://www.bloomberg.com/news/2011-11-15/oil-tanker-rates-seen-rising-as-scrap-values-speed-up-demolitions-freight.html

Demolition prices could fall, on lower steel prices:

Ship owners could soon have to rush to scrapyards across the Indian subcontinent or other countries, in order to achieve better prices for the sale of their older vessels for scrap. 

In what could trigger more sales of ships for demolition and in that way, help lower tonnage oversupply, a major issue across all shipping segments, CRWeber noted, in a recent analysis that average demolition values in China and the Indian subcontinent have come under pressure lately, with “$/LDT values posting a 7.3% decline since mid‐October. Although global steel prices have gained 4.8% since January, prices have shed 13.9% since reaching a YTD high in March. Given the price discount for steel reclaimed via tanker demolitions in locations with cheap labor relative to global steel prices, demolition values have been less impacted than global steel prices; average China and Indian subcontinent $/LDT values have only lost 2.5% since March.

Several global steel production facilities are reportedly idling production as the European sovereign debt crisis continues to stoke uncertainty in global markets. Accordingly, the gap between global steel price indices and demolition values could narrow, mitigating greater further $/ldt losses Despite a more limited pricing gap, even minor $/ldt losses may present fresh downside risk for tanker markets as the recent progression to newer, double hull tanker demolition sales remain one of several key factors to alleviating overcapacity in the sector” said CRWeber in its report.

It went on to mention, that double hull tanker tonnage accounted for 78.1% of the total tanker tonnage demolished, a figure significantly higher than the average of just 18% during the 1st 3 quarters. “Over the past 2 weeks, however, demolition sales activity has declined markedly, with just one unit reported as sold to such buyers”, concluded CRWeber.

Meanwhile, in the crude freight market, there have been significant changes in the MEG VLCC front, during the past few days, says shipbroker Fearnleys. In its latest weekly report, the shipbroker said that “with more than 130 VLCC fixtures already registered for November loading in the MEG and with additional cargoes still making their appearance, owners are clearly feeling more optimistic and are more confident in their efforts to lift rates further. Charterers, on the other hand, are faced with a thinner selection of tonnage and a more confrontational attitude from owners. Under the circumstances, we deem it likely that MEG VLCC rates could rise somewhat above present levels. We would also advise a careful monitoring of an eventual early start to the December loading programme. The availability of VLCC tonnage in the Atlantic remains slim, but this has so far had little impact on rates due to the relative stability of the Suezmax market in the area. Suezmax activity was stable in WAF and rates have remained at last week´s levels. In the Med/Bsea Suezmax rates were rather flat and could experience further downward pressure as a result of diminishing delays in the Turkish straits which are already at nominal levels. Rates for Aframaxes trading from the Nsea to the Continent remained unchanged from last week at ws100. In the Med and in the Caribs, however, Aframax rates experienced a slight decline as a result of more than sufficient available tonnage for the requirements in play” concluded Fearnleys.

In its analysis of the tanker market during the third quarter, Teekay Tankers said that “crude tanker rates weakened significantly during the 3rd quarter of 2011, primarily due to an oversupply of vessels relative to demand. In addition, a number of isolated and seasonal factors exerted downward pressure on rates during the quarter. The decision by International Energy Agency (IEA) member countries to release 60 million barrels (mb) of oil from government stockpiles impeded tanker demand during the quarter, particularly in the United States where 30 mb of crude oil was released from reserves. In Europe, the ongoing absence of Libyan oil exports as well as oilfield maintenance and unplanned outages in the North Sea further weighed down on crude tanker demand. Tanker rates have remained generally weak in the early part of the fourth quarter to date, though rates in the Mediterranean and Black Sea spiked significantly in October as a result of an increase in transit delays through the Turkish Straits due to stricter regulations on the passage of vessels during non-daylight hours.

The tanker fleet grew by 20.0 million deadweight tonnes (mdwt), or 4.4%, in the first 3 quarters of 2011 compared to a net increase of 14.5 mdwt, or 3.4%, in the same period last year. The level of new tanker ordering remains very low with just 6.4 mdwt of tanker orders placed in 2011 to date, of which 2.0 mdwt was attributed to shuttle tankers, compared to 40.0 mdwt of tanker orders in 2010, of which 0.7 mdwt was attributed to shuttle tankers. As a result, the global tanker order book has fallen to 96 mdwt, the lowest level since March 2006. Expressed as a percentage of the active tanker fleet, the order book is at its lowest level since February 2003 at 20% of the total fleet” concluded Teekay.

Source: Hellenic Shipping News Worldwide. By Nikos Roussanoglou. 11 November 2011

http://www.hellenicshippingnews.com/index.php?option=com_content&view=article&id=57383:demolition-prices-could-fall-on-lower-steel-prices-&catid=1&Itemid=61