(Updates with Japanese carmakers in 10th paragraph.)
Oct. 25 (Bloomberg) -- Ships capable of hauling 4,000 cars across the world’s oceans may make the most money next year since the global recession as production reaches a record and demand from emerging markets swells cargoes.
Shipments will rise 10 percent to 12.7 million vehicles in 2012, more than twice the fleet’s expansion, according to ABG Sundal Collier ASA, an investment bank in Oslo. Rates for the 550-foot vessels will gain 36 percent to $15,000 a day, RS Platou Markets AS estimates. Wilh. Wilhelmsen ASA, Europe’s biggest owner of the ships, will boost profit for at least two more years, analyst estimates compiled by Bloomberg show.
Global car sales will rise 8.5 percent to 80.7 million in 2012, according to researcher JD Power & Associates. Demand is being led by developing nations, which will expand 6.1 percent next year, compared with 1.9 percent for advanced economies, the International Monetary Fund predicts. For owners of car carriers, that means profit at a time when freighters hauling commodities are losing money.
“Who’s buying cars? That’s Brazil, that’s Russia, that’s India, that’s China,” said Ole Stenhagen, an analyst at SEB Enskilda AS in Oslo, whose recommendations on shipping companies would have returned 71 percent for investors over the past three years. “As long as you’ve got fleet growth under control, you’re set for a significant increase over the next three to five years.”
Car carriers will earn an average of $11,000 a day this year and next year’s projected rates would be the highest since 2008, according to Platou. They’ll advance another 20 percent to $18,000 in 2013, the Oslo-based investment bank estimates.
Capesizes, the largest ships hauling iron ore, on average made $12,999 a day this year, below their breakeven of about $20,000, according to data from the London-based Baltic Exchange, which publishes assessments for more than 50 maritime routes. Forward freight agreements, traded by brokers and used to bet on future costs, anticipate rates no higher than $18,575 through 2016.
The largest oil tankers averaged $7,863 a day this year on the Saudi Arabia-to-Japan route, the industry’s benchmark, Baltic Exchange data show. Frontline Ltd., the biggest operator of the vessels, says it needs $29,800 to break even. FFAs indicate rates no higher than $10,475 through 2013.
Returns on ore and oil vessels slumped because of a glut of carriers after rates that were as much as eight times higher in 2008 spurred owners to order new ships.
The capesize fleet expanded 50 percent since the end of 2008 and orders at yards are equal to 30 percent of existing capacity, according to data from Redhill, England-based IHS Fairplay. That compares with growth of 11 percent for very large crude carriers and orders at 15 percent. The flotilla of car transports gained 2.4 percent and orders are at 9.7 percent.
Japanese carmakers including Honda Motor Co. had to halt production for almost two months after a magnitude-9 earthquake and subsequent tsunami struck the country March 11, eroding supplies of vehicles and spare parts overseas. Toyota City, Japan-based Toyota Motor Corp., the biggest Asian auto producer, returned to full output last month.
Asian vehicle sales plunged 17 percent in the second quarter from the year’s first three months, figures from JD Power show. They gained 11 percent in the third quarter from the second and will climb 6.4 percent in the current period, its data show. Worldwide sales of Japanese vehicles are set to increase 6.3 percent to 4.95 million this year and 1 percent to 5 million in 2012, according to figures from SEB Enskilda.
Expectations for more car shipments and higher returns for vessel owners depend on economic expansion. The shipping industry handles about 90 percent of global trade, according to the Round Table of Shipping Associations. The IMF sees growth in world trade volumes, a measure of goods and services, slowing to 5.8 percent in 2012 from 7.5 percent this year.
Chinese car sales will rise less than 5 percent this year, below a previous estimate of 10 percent to 15 percent, Dong Yang, deputy head of the China Association of Automobile Manufacturers, said in an interview Oct. 11. Sales in India may advance no more than 2 percent in the 12 months ending March 31, the Society of Indian Automobile Manufacturers said Oct. 10. It was the second cut in the group’s forecast.
Car production contracted 3.2 percent in 2009, during the worst global recession since World War II, according to Westlake Village, California-based JD Power. Vehicle shipments plunged 37 percent to 9.3 million vehicles, ABG Sundal Collier estimates. Its forecast for shipments of 12.7 million vehicles next year would still be about 14 percent below the total in 2008.
That won’t stop shipping company profits. Lysaker, Norway- based Wilhelmsen will report net income of $133.6 million this year and $201.1 million in 2012, compared with $13 million in 2010, according to the mean of 11 analysts’ estimates compiled by Bloomberg. Shares of the company fell 28 percent this year in Oslo trading, compared with a 7.5 percent drop in the MSCI All- Country World Index of equities.
Frontline, based in Hamilton, Bermuda, plunged 82 percent in Oslo trading this year. Golden Ocean Group Ltd., which operates a fleet of capesizes and smaller panamax vessels, dropped 41 percent.
Car carriers are also making more money because of increasing Asian demand for European luxury cars, according to Lars Solbakken, the chief executive officer of Oslo-based Norwegian Car Carriers ASA. While vessels previously would sometimes return to Asia empty after delivering cars to Europe, they are now picking up more cargoes for the return leg, Solbakken said.
Shipments to China
China imported an average of 51,233 cars a month this year, almost three times more than in 2009, according to SEB Enskilda. European-made vehicles account for 73 percent of the total.
“Car sales in emerging markets such as Eastern Europe, Middle East and China continue to grow,” said Frode Morkedal, an analyst at Platou in Oslo whose recommendations would have returned 23 percent for investors over the past two years. “Seaborne cargo from particularly Japan and Korea into these markets will continue to support car carriers.”
--Editors: Dan Weeks, Claudia Carpenter.
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