Bloomberg News

Mitsui Sells Newest Double-Hulled Supertanker to Be Scrapped

December 06, 2011

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 percent 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 two 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 four- 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 two 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


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