Tanker Owner Frontline Says Market Remains Weak; May Sell Ships
May 25, 2011, 4:20 AM EDTBy Alaric Nightingale
May 25 (Bloomberg) -- Frontline Ltd., the supertanker owner led by Norway-born billionaire John Fredriksen, said a weak market for leasing its ships to oil companies will likely persist and that it may sell vessels.
“The board expects the weak trend in the first-quarter results to be extended into the second quarter,” Frontline said in a statement today. “It is hard to see a recovery in the tanker market” for as long as the supply of ships grows faster than demand.
The industry is at the start of a five-year downturn, Tor Olav Troeim, a director at Frontline and several other companies controlled by Fredriksen, said at a conference near Oslo yesterday. The company’s strategy may involve selling assets and becoming “passive,” it said today.
Returns on very large crude carriers, or VLCCs, that reached $177,036 a day in July 2008 were last at $8,900, according to the London-based Baltic Exchange, which publishes daily rates for more than 50 maritime routes. Frontline, based in Hamilton, Bermuda, needs $29,700 a day to break even on its supertankers, it said today.
Frontline will pay a dividend of 10 cents a share for the first quarter after net profit fell to $15.5 million from $79.7 million a year ago, it said in a statement.
“They are retaining all the cash they can,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, who has a “sell” recommendation on Frontline shares. “They are basically saying ‘we are going to sit down and try to weather the storm.’”
Fleet Expansion
A surge in charter rates in 2007 and 2008 spurred owners to order more ships, on the eve of the worst global recession since World War II. Those vessels are now leaving shipyards, meaning the tanker fleet will expand 7.4 percent this year, compared with a 3.1 percent gain in demand, according to the research unit of Clarkson Plc, the world’s biggest shipbroker.
Oil-tanker owners have responded to the slump in rates by cutting their speeds from an average of 10.8 knots in July 2008 to 8.8 knots now, according to ship-tracking data compiled by Bloomberg. There are more than 600 tankers anchored globally, up from about 350 three years ago, the data show.
The glut will take time to erode because only 10 percent of the fleet is above 15 years old, reducing the speed of demolitions, Troeim said in an interview after his speech. By contrast, a quarter of the dry bulk fleet hauling coal and iron ore is more than 20 years old, he said. The slump in dry bulk shipping may be over in three years, Troeim said.
--Editors: John Deane, Sharon Lindores
To contact the reporter on this story: Alaric Nightingale in London at anightingal1@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net
