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Frontline Sees 'Massive' Oil-Tanker Cancellations

8061 fcras 16/4 2009 07:13

Thursday, 16 April 2009

A plunge in supertanker rates to their lowest in at least 11 years will likely spur owners to scrap ships and cancel orders for new ones, according to Frontline Ltd., the world’s largest operator of the carriers. Supertankers are making $4,335 a day after fuel costs for delivering Middle East crude to Asia and the U.S., according to data from the London-based Baltic Exchange. Hamilton, Bermuda- based Frontline said Feb. 26 it needs $12,000 to cover costs such as repairs, crew, insurance and lubricants for engines. Interest on loans takes the figure to $32,100.

“We will see scrapping happening soon, then we will see massive cancellations in the order book,” Singapore-based Jens Martin Jensen, temporary chief executive officer of Frontline’s management unit, said by phone today. “I don’t think this market is going to last until 2011.”

Shipyards in South Korea, China and Japan have all but two of the 146 orders for very large crude carriers, according to Lloyd’s Register-Fairplay data on Bloomberg. Daewoo Shipbuilding & Marine Engineering Co., based in Seoul, has the most, with 26 orders, the data show. Hyundai Heavy Industries Co., the world’s largest shipbuilder by market value, has orders for 16.

The Organization of Petroleum Exporting Countries, led by Saudi Arabia, agreed to cut production three times since September, curbing demand for tankers. The International Energy Agency, an adviser to 28 nations, on April 10 said consumption this year would drop to its lowest since 2004.

Oil Tankers
Shipyards have orders for 946 oil tankers, capable of carrying a combined 1 billion barrels of crude, according to data from London-based Drewry Shipping Consultants Ltd. Of those, 225 are very large or ultra-large crude carriers that normally collect Middle East and West African cargoes.

Frontline fell 41 percent in New York trading this year while the five-member Bloomberg Tanker Index lost 32 percent.

The company has sought to address the slump in rates in the single-voyage market by securing longer-term rental accords for “a little more” than 50 percent of its fleet, Jensen said.

Orders for oil tankers may not be the only ones to suffer. The Baltic Dry Index, a measure of the cost of hauling coal, ore and grains, fell 92 percent last year. D/S Norden A/S, Europe’s largest commodities shipping line, said April 7 that the lower rates would probably curb a record construction program for those ships, half of which are being built in China.

Source: Alaric Nightingale, Bloomberg