Global Ports Forum

Biggest Shipping Hedge Fund Sees Frozen Gas Beating Crude in 2012
By Alaric Nightingale
January 02, 2012 7:00 PM EST

Tankers hauling liquefied natural gas at sea will earn record rates in 2012 as demand reaches an all- time high, beating returns from vessels carrying oil and coal, according to the world’s biggest shipping hedge fund.
The tankers, each holding enough gas to meet about 25 percent of peak daily winter demand in the U.K., will earn as much as $200,000 a day this year, from $140,000 at the end of 2011, said Andreas Vergottis, the Hong Kong-based research director at Tufton Oceanic (OCEHEDU) Ltd. That means the most profit ever for Golar LNG Ltd. and Teekay LNG Partners LP, which operate 33 of the vessels, analyst estimates compiled by Bloomberg show.
Demand for LNG, liquefied by cooling the gas to minus 260 degrees Fahrenheit, is rising as nations from the U.K. to South Korea increase pollution curbs. Gas emits about half the carbon dioxide of coal. Japan, the biggest importer, is buying more after closing 89 percent of its nuclear capacity following March’s Fukushima disaster, eliminating a glut of tankers. Ship shortages may worsen, with the 372-strong fleet projected to expand just 0.8 percent this year, Morgan Stanley estimates.
“LNG is a high-growth, high-profit industry,” said Vergottis, whose research is used by the $1.45 billion Oceanic Hedge Fund, which gained 6.8 percent in the first 11 months of the year as the Lloyd’s List/Bloomberg Index of the 50 largest shipping companies (LLSIVAL) slumped 39 percent. “Next year looks even more hot. There’s not a single cloud for two years.”
The cost of hiring an LNG tanker for a year or more averaged $97,630 a day in 2011, from $43,663 in 2010, according to Fearnley LNG, an Oslo-based consultant and brokerage that’s a unit of the Astrup Fearnley Group.
Maritime Routes
That compares with last year’s 90 percent decline in rates for the largest oil tankers to $1,214 a day as the biggest fleet in about three decades overwhelmed demand, data from the London- based Baltic Exchange show. Capesizes hauling coal and iron ore averaged $15,639 a day last year, from $33,298 in 2010, according to the bourse, which publishes freight costs for more than 50 maritime routes.
Global LNG demand may expand 7.5 percent this year to 258 million metric tons, led by Japan, China and India, according to Sanford C. Bernstein & Co., a New York-based researcher. World capacity to produce the fuel will rise 61 percent in the decade to 2020, Morgan Stanley estimates.
Shipping companies will struggle to keep up. There are 60 tankers on order at yards, mostly in South Korea and China, equal to about 17 percent of the existing fleet, data from Redhill, England-based IHS Fairplay show.
Trade and Development
Construction is lagging behind the surge in demand, partly because of costs. A new gas carrier sold for $210 million in 2010, compared with $99 million for the largest oil tankers and $57 million for capesizes, according to the United Nations Conference on Trade and Development. They need equipment to hold about 155,000 cubic meters (5.5 million cubic feet) of frozen liquid that expands to 95 million cubic meters in gas form.
The vessel shortage may ease as rates increase. Returns are high enough to cover building costs in about three years, said Vergottis. The tankers may account for as much as 20 percent of the merchant fleet within a quarter century, from about 5 percent now, said the 50-year-old research director, who is working on a project to collate shipping rates for all major vessel classes going back to 1850.
The anticipated surge in LNG demand may be curbed should growth slow. The global economy will expand 2.3 percent this year, compared with 2.7 percent in 2011 and 4 percent in 2010, according to a composite of economists’ regional forecasts compiled by Bloomberg. About 90 percent of world trade moves by sea, the Round Table of Shipping Associations estimates.
Four Decades
Natural-gas consumption fell 2.6 percent in 2009, the most since at least 1965, as economies contended with the worst global recession since World War II, according to data from London-based BP Plc. Demand in Japan, which accounts for about 32 percent of all LNG imports, retreated 6.7 percent, also the biggest decline in more than four decades.
Not all owners may benefit from higher rates. Companies typically lease out tankers on long-term charters at fixed prices. Of the total fleet of 372 vessels, 44 were available for hire as of the middle of last month, according to Morgan Stanley. Awilco LNG AS, based in Oslo, has its three vessels chartered out until at least August, and Hamilton, Bermuda-based Hoegh LNG Holdings Ltd. has all of its fleet leased on longer duration charters, according to their websites.
Analyst Estimates
Golar controls more than 25 percent of the available vessel supply over the next three years, according to Morgan Stanley. The Hamilton, Bermuda-based company will report net income of $168.1 million for this year, compared with a predicted $70.7 million for 2011, the mean of 12 analyst estimates shows. Its shares almost tripled to 263.8 kroner last year in Oslo trading and will reach 283.05 kroner in the next 12 months, according to the average of 10 analyst estimates.
Teekay LNG Partners (TGP) will report profit of $107.9 million for 2012, compared with a projected $83.9 million last year, the mean of four estimates shows. Shares of the Nassau, Bahamas- based company fell 13 percent to $33.17 in New York trading in 2011 and will reach $38.20 in 12 months, the average of five estimates shows.
Natural gas’s share of global energy demand will climb to 23 percent by 2035 from 21 percent now as oil’s contribution declines to 27 percent from 33 percent, according to the Paris- based International Energy Agency. LNG is contributing to the gain because it links consumers with producers that may be too far apart to connect by pipeline. Qatar, the biggest LNG supplier, is about 5,000 miles from Japan.
Biggest Shipbroker
The first LNG shipment went from Lake Charles in Louisiana to the U.K. in 1959 and the industry has now expanded to import facilities in 23 countries, according to London-based Clarkson Plc, the world’s biggest shipbroker.
For shipping companies (GOL), stronger LNG demand echoes what happened when oil started displacing coal as an energy source in the first half of the 20th century, said Vergottis, whose family has owned ships for four centuries. That shift took oil tankers from a niche vessel class to the dominant type in energy transportation by the 1970s, he said.
“The same is happening with LNG,” Vergottis said. “LNG is earning a 25 percent return on capital. A tanker is earning minus three. LNG is the growth part of the market.”
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

Hamburg Sued Says Freight Rates Unlikely to Stabilize, FAZ Says
By Niklas Magnusson
January 03, 2012 2:07 AM EST
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Hamburg Sued doesn’t expect freight rates for container shipping to stabilize this year, Frankfurter Allgemeine Zeitung reported today, citing an interview with Chief Executive Officer Ottmar Gast.
While capacity in the industry may increase 9 percent in 2012, cargo volumes probably will rise only 8 percent, Gast also told the newspaper.
To contact the reporter on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net
To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

Bloomberg News, nothing the FBI and Secret Service can do about it.”

In April, the Department of Justice dismantled one of the largest known criminal botnets, a network of infected computers programmed to send data automatically from their hard drives to a server controlled by hackers. The department declared the break-up of Coreflood, as the botnet was known, a major victory.

The Russians

It said almost nothing about the criminals who ran it. Researchers at Dell SecureWorks, the Atlanta-based security firm that aided the investigation, said the kingpins behind Coreflood are three Russians last known to be living comfortably in Rostov, a mid-size city on the Don River.

“Our relationship with the Russians is always a work in progress,” Strom said.

No one personifies Russia’s place at the top of the cyber underworld more than Gribo-demon, a Russian programmer, around 30 years old, U.S. investigators estimate. He is one of the few cybercriminals who is the focus of a his own FBI special operation. Gribo-demon is the author of SpyEye, a sophisticated malware package first released in late 2009 and upgraded several times since then.

Once downloaded on a machine, the malware can be used by hackers to take remote command of key functions. Using SpyEye, a cyberthief can hijack an online banking session in real time, transfer funds to accounts they or their mules control, and adjust the balance displayed so nothing seems amiss.

Seems Legit

The transaction looks legitimate because, in computer terms, it is. All the bank can tell is that it was made from their customer’s computer, using their correct password. A basic version of SpyEye costs around $2,000, according to the hacker sites.

“SpyEye provides military-grade intrusion capabilities for the price of a TV,” said Gunter Ollmann, vice president of research at Damballa Inc., the Atlanta-based security firm that tracks major cyberthreats.

Gribo-demon’s real innovation stems from what he didn’t do: keep SpyEye to himself. Hackers used to write their own code. Good tools were trade secrets. Gribo-demon instead licenses SpyEye, mimicking Microsoft and Oracle, a business model that arguably opened cybercrime to the masses.

The model was pioneered by a competitor and fellow Russian who created popular malware called ZeuS, according to security experts. ZeuS first appeared in 2008. Both programmers provided clients with customer service, offering an array of enticing modules to add functionality for an additional price.

Beta Testing

The ZeuS author, known as Slavik, even Beta-tested new versions with elite users, according to Don Jackson, a SecureWorks researcher. Slavik disappeared in late 2010, but not before he handed the ZeuS source-code to Gribo, who incorporated some of its features into his own product, Jackson said.

Security experts say it’s hard to overestimate impact of Slavik’s and Gribo-demon’s handiwork. In September, the Tokyo- based cybersecurity firm Trend Micro publicized a dossier on a 20-something Russian cyberthief who goes by the name Soldier, tracing his activities in the underground forums over several months. Using SpyEye, soldier stole $3.2 million from U.S. customers of three banks in just six months — about $17,000 a day — Trend Micro said.

Going Price

The hacker used bank-account information scraped from more than 25,000 victims’ computers, in some cases renting other cyberthieves’ networks of infected computers. He created counterfeit checks with banking data and mailed them to money mules throughout the United States. They cashed them, then forwarded the funds untraceably to Russia. He even used stolen credit card numbers vacuumed from the victims’ hard drives to buy pre-paid postal-service labels for the packages.

“From start to finish, this guy leveraged every bit of data,” said Alex Cox, an investigator for Netwitness, a cybersecurity division of EMC Corp., which has also been tracking Soldier’s activities.

The most remarkable thing about the theft — and this is, to experts in the field, the most worrisome development of the past few months — was that Soldier didn’t need any special expertise with computers. All he needed was a shopping list.

“He’s not a lone hacker,” said Trend Micro’s David Perry. “He didn’t write any code.”

Shopping List

Strom said the FBI is also tracking Soldier and is confident they’ll get him. “These guys are very sophisticated, but often times they slip up,” Strom said.

Strom and other investigators have one significant advantage: the hackers have a habit of turning their skills on one another. The FBI’s DarkMarket sting started with a hacker war between a hacker, calling himself Iceman, who ran CardersMarket, and JiLsi, the DarkMarket administrator, whose real name was Renukanth Subramaniam, the FBI said.

“We took advantage of that animosity,” Strom said, eventually persuading JiLsi to turn over the site to the FBI and giving the bureau control over all communications involving DarkMarket’s 2,500 members. As a result, Subramaniam was sentenced to more than four years in prison in the U.K.

Maza, the elite Russian forum, was recently hacked and its database dumped online. It presented a priceless opportunity for law enforcement. The forum’s database held membership lists, e- mail addresses, IP addresses, and passwords — the kind of information the world’s top cyber thieves try very hard to keep secret. The main suspect in the Maza attack is the administrator of a rival site, Hex Nightmare said.

Learned a Lot

“We learned a lot of lessons with DarkMarket, and we’ve passed that experience on not only to other offices within the FBI but to our counterparts overseas,” Strom said. “We’re definitely taking the fight back to them.”

Hex Nightmare agrees the FBI may eventually make more progress. When Slavik, the author of the ZeuS malware, disappeared in 2010, he was at the height of his fame. Theories about his disappearance abound on the underground: Slavik was killed; he now works as a cyberspy for the Russian government. Hex Nightmare has her own: “I think Slavik thought it was a good time to get out.”

To contact the reporter on this story: Michael Riley in Washington at michaelriley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net .

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Nordic Shipping Banks Beat UniCredit Amid Container Overcapacity
By Niklas Magnusson and Adam Ewing
December 21, 2011 7:27 AM EST

DNB ASA and Nordea Bank AB (NDA), the largest providers of ship financing, may benefit as competitors face capital shortages from Europe’s sovereign debt crisis.
DNB and Nordea are better positioned to lend money because smaller shipping banks are more vulnerable to slumping freight rates and overcapacity. The two Nordic banks also need to raise less capital because of new banking rules than larger rivals do.
“All of them apart from DNB and Nordea will probably scale back their shipping businesses, because the first thing a bank does to improve its capital ratio is to exit loan agreements to cut their balance sheets,” said Matti Ahokas, an analyst at Svenska Handelsbanken AB in Helsinki, in a phone interview.
UniCredit SpA, whose German unit is one of the country’s biggest shipping lenders, and Commerzbank AG, which owns Deutsche Schiffsbank AG, each need to raise more than 5 billion euros ($6.5 billion) to meet tighter rules imposed by the European Banking Authority.
DNB needs to boost its cash buffer by 1.5 billion euros while Nordea, the Nordic region’s largest bank, doesn’t have to raise any new cash, according to stress-test results released Dec. 9.
Nordea, based in Stockholm, has lost 28 percent in trading this year and Oslo-based DNB has declined 30 percent. Milan- based UniCredit, which needs to raise 8 billion euros by mid- 2012, has dropped a steeper 52 percent. Commerzbank in Frankfurt has slumped 70 percent on concern its 5.3 billion-euro capital shortage will push it toward a second bailout.
‘Gaining Position’
“We are benefiting as we’re the No. 1 shipping bank in the world,” Nordea Chief Executive Officer Christian Clausen said in an interview on Dec. 9. “While the amount we have on our balance sheet is not going to increase, we are gaining position.”
Europe’s debt crunch is threatening growth in the container industry while the introduction of new ships means shipping lines may face half a decade of oversupply. That has sent freight rates plunging 70 percent since a 2010 peak, in turn putting pressure on the profitability of shipping companies.
In Germany, home to the world’s third-largest container fleet, small and mid-sized shipping companies along the North Sea coast face potential insolvency as banks demand more collateral for critical loans and they struggle to pay principal and interest on credit, Max Johns, spokesman for Germany’s VDR shipping association, said in an interview.
Bankruptcy, Insolvency
So far, Germany’s Beluga shipping line has filed for bankruptcy while Sietas KG, Germany’s oldest shipyard, has filed for insolvency because it can’t pay debt and salaries.
“This is the worst crisis since World War II,” Johns said. “A lot of the charter owners cannot pay interest rates to the banks because of unusually low charter rates.”
DNB focuses on the largest shipping companies, which shields it more from market fluctuations, according to Leif Teksum, group executive vice president and head of the Large Corporates and International unit, Harald Serck-Hanssen, head of shipping, offshore and logistics, and Trygve Young, chief risk officer. They spoke on a Dec. 16 conference call.
“It is remarkable to see how small the losses have been,” Young said. DNB, which has financed the shipping industry for about 150 years, may have some “challenging cases” in the next two years, Serck-Hanssen said.
Loan Agreements
Of 250 DNB clients, 50 were in breach of loan agreements over the last three years, Serck-Hanssen said. Of those 50, 15 were restructured and in three cases DNB had to take over assets. Loan losses are likely to rise from third-quarter levels because of the shipping crisis, he added.
“As one of the leading global lenders to shipping, DNB will invariably be affected by the cyclicality in the sector, although its long-standing relationship with most of its customers and experience in the sector is likely to mitigate this,” Fitch Ratings said on Dec. 16 when it affirmed DNB’s long-term issuer default rating at A+.
“DNB in Norway has its main exposure and revenue stream from a strong domestic economy that is doing far better than economies in other European countries,” Bengt Kirkoen, an analyst at First Securities ASA in Oslo, said in a phone interview.
Nordea, which navigated the 2008 financial crisis without a state bailout, hasn’t reported a quarterly loss since the fourth quarter of 1998. Its focus on retail banking in Sweden, Finland, Norway and Denmark made it less vulnerable to loan losses than most European peers, Ahokas said.
Low Funding Costs
“DNB and Nordea have some of the lowest funding costs in Europe, and their wholesale funding costs are a great competitive advantage,” he said. “A lot of banks would probably want to be more active in shipping finance, because of the high margins, but they cannot because of the funding situation.”
Price competition in the industry means that many companies with smaller fleets of 15 vessels or less can’t compete with their larger rivals and are operating at a loss.
“We’re not happy with the market at the moment, as it has turned negative since the summer,” said Oliver Faak, managing director for Norddeutsche Landesbank Girozentrale’s German shipping unit. The lending environment has also “become much tougher and much more demanding” as banks have to demand tougher terms for loans, he said.
Still, the Hanover, Germany-based bank, known as NordLB, expects its shipping portfolio to “moderately” grow in size in 2012. NordLB is about to hire another 15 people for its ship- finance business in coming months in part to help clients who are in financial trouble restructure their businesses, he said.
Banking Hires
Other banks also aim to gain from the turbulence in the industry. Hamburg-based HSH Nordbank AG is likely to benefit from lenders retreating from ship financing, Financial Times Deutschland reported Nov. 21, citing management board member Torsten Temp. The lender, one of the world’s biggest shipping financers, on Dec. 16 said it hired Ingmar Loges from UniCredit as the new head of its new Shipping Clients International unit.
UniCredit’s German shipping unit, which in January forecast its shipping portfolio would grow as much as 10 percent this year, expects it will be reduced in 2012, said Holger Janssen, head of global shipping at UniCredit Bank AG in Hamburg.
“Shipping companies are favoring their own tonnage, which is why tonnage providers and hence the time charter rates may become the victims of overcapacity,” he said. “It is not surprising that in the current shipping market climate bank lending will continue to tighten.”
To contact the reporters on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net Adam Ewing in Stockholm at aewing5@bloomberg.net;
To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net

HNA Completes $1.05 Billion Purchase of GE Container Leasing Arm

Dec. 16 (Bloomberg) — HNA Group, a Chinese investor in aviation and shipping, and Bravia Capital completed the $1.05 billion acquisition of General Electric Co.’s GE SeaCo venture, the world’s fifth largest container-leasing enterprise.

All “key” SeaCo managers, including Chief Executive Officer David G. Amble, will remain with the company, according to a statement. The purchase includes container fleets owned separately by GE and partner SeaCo Ltd., for a total of about 870,000 20-foot equivalancy units, the standard industry measure.

The Chinese company is pressing ahead with the purchase of lessor GE SeaCo after walking away from a 330 million euro ($429 million) investment in Spanish hotel chain NH Hoteles SA. HNA cited market conditions for its decision this week to abandon the hotel deal at a cost of $15 million in compensation.

HNA and Bravia plan to expand GE SeaCo’s container fleet “significantly” during the next two years, they said in August, as rising shipments of Asian-made goods to Europe and the U.S. boosts demand for cargo boxes. Fairfield, Connecticut- based GE is selling the unit as it sheds finance assets to focus on industrial operations.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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World Fuel’s Shares Seen Riding Shipping Bankruptcies to 12% Gain
By Isaac Arnsdorf
December 12, 2011 7:00 PM EST

At a time when the biggest-ever fleet of merchant vessels means losses and bankruptcy for ship owners, the company providing about 12 percent of their fuel is poised to make record profit.
World Fuel Services Corp. will report a 31 percent gain in net income this year, the mean of five analyst estimates compiled by Bloomberg show. All of them recommend buying shares (INT) of the Miami-based company and on average anticipate a price of $47.40 in 12 months, or 12 percent more than at 11 a.m. in New York yesterday.
The combined carrying capacity of oil tankers, dry-bulk carriers and container ships more than doubled over the past 15 years to 1.3 billion deadweight tons, according to London-based Clarkson Plc, the world’s biggest shipbroker. While that caused charter rates to collapse below breakeven for most vessels this year as supply outpaced cargoes, it also drove annual fuel sales to a record $130 billion, data compiled by Bloomberg show.
“What’s causing shipping rates to fall is more ships on the water, but that means more fuel to burn,” said Kevin Sterling, an analyst at BB&T Capital Markets in Richmond, Virginia, whose recommendations on the shares of World Fuel Services returned 31 percent in the past year. “When everyone is worried about ship owners and rates, World Fuel can cherry- pick who they want to deal with.”
Other providers of so-called bunkers tend to be smaller, regional companies or state-owned entities, and oil companies also sell directly to ship owners, Sterling said. The fuel is usually not traded by investors. Shares of World Fuel Services rose 17 percent this year in New York and are at 15.6 times expected earnings, down from as much as 16.7 in February.
Tanker Index
The six-member Bloomberg Tanker Index (TANKER) fell 54 percent this year, the Bloomberg Pure Play Dry Bulk Shipping Index of 14 companies 42 percent and the 50-member Lloyds List-Bloomberg Container Index 38 percent. The MSCI All-Country World Index of equities declined 10 percent and Treasuries returned 8.9 percent, a Bank of America Corp. index shows.
Bunkers are a type of residual fuel oil, accounting for about 20 percent of the average barrel of processed crude, data compiled by Bloomberg show. It yields products that are used in everything from ships to power plants to road surfacing.
Fuel oil costs about $6.27 a barrel less than crude in Singapore, compared with an average discount of about $9.03 in the past five years, according to PVM Oil Associates, a London- based energy broker. Refiners typically make their profit from products such as jet fuel and gasoline. In Asia, their margin on a barrel of crude averaged $5.28 this year, heading for the highest annual average since 2007, data compiled by Bloomberg show.
Maritime Council
Marine fuel averaged $637.26 a metric ton this year, 38 percent more than in 2010, data compiled by Bloomberg from 25 ports shows. Prices are linked to crude costs and local supply and demand, said David Wech, head of research at JBC Energy GmbH, a consultant based in Vienna. Fuel accounts for 70 percent of ship owners’ expenses on average, according to the Baltic and International Maritime Council, the largest trade group.
Demand from ship owners will rise 1.4 percent to a record 3.8 million barrels a day next year, compared with 3.75 million barrels in 2011, JBC Energy estimates.
World Fuel Services is an intermediary between shipping companies and oil refiners, which sometimes prefer not to sell directly to vessel owners, Chief Financial Officer Ira Birns said by e-mail. He declined to be interviewed for this article.
International Recovery Corp., founded in 1984 and listed in New York in 1986, bought Trans-Tec Services Inc. in 1995 and changed its name to World Fuel Services. The company now operates in more than 1,000 ports and also provides fuel for planes and trucks, businesses that accounted for 52 percent of sales last year, data compiled by Bloomberg show.
Merchant Fleet
While the global merchant fleet is expanding, vessels are slowing down to cut fuel consumption as charter rates tumble, potentially crimping sales for World Fuel Services. Oil tankers sailed at an average of 8.6 knots last month, compared with 10.6 knots three years earlier, ship-tracking data compiled by Bloomberg show. The average speed of a container ship was 11 knots in November, down from 12.9 knots in 2008.
There are also signs global economic growth is slowing, curbing gains in demand for everything from oil to iron ore to consumer goods transported in steel boxes. The shipping industry handles about 90 percent of world trade, according to the Round Table of Shipping Associations.
World trade in goods and services will grow 5.8 percent next year, compared with 7.5 percent this year and 12.8 percent in 2010, the International Monetary Fund estimates. The global fleet will expand 6.4 percent next year, extending a 31 percent advance since the end of 2007, Clarkson data show.
Container Industry
Analysts don’t expect that to translate into less profit for World Fuel Services. The company’s net income will reach $193 million in 2011 and $214.8 million in 2012, compared with $146.9 million last year, the mean of the estimates compiled by Bloomberg show.
The container industry will probably lose a combined $5 billion this year, London-based Drewry Shipping Consultants Ltd. estimates. The members of the Bloomberg Tanker Index will report losses of $1.1 billion, based on analyst estimates compiled by Bloomberg. The members of the Bloomberg Pure Play Dry Bulk Shipping Index will report a combined profit of $293.7 million, down from $1.48 billion in 2010, the estimates show.
Frontline Ltd., based in Hamilton, Bermuda, said Dec. 6 it would split the company, the world’s biggest operator of supertankers, to avoid running out of cash. New York-based General Maritime Corp., the second-biggest U.S. tanker owner, filed for bankruptcy protection from creditors on Nov. 17.
Baltic Exchange
Earnings for the largest oil tankers fell 20 percent this year, according to Clarkson. Daily costs to hire capesizes, the biggest ore carriers, averaged $15,065, the lowest since 2002, according to data from the London-based Baltic Exchange, which publishes freight rates along more than 50 maritime routes. Rates for box cargo shipments from Asia to the U.S. West Coast fell 28 percent this year, Clarkson estimates.
“Volumes for shipping are up,” said Greg Lewis, an analyst at Credit Suisse in New York whose recommendations on the shares of transport companies returned 28 percent in the past three years. “As long as cargoes are moving, World Fuel is selling fuel.”
To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

Survivor of Oil-Tanker Rout Sees Biggest Returns in Coal Carriers
By Isaac Arnsdorf
December 06, 2011 7:01 PM EST

Knightsbridge (VLCCF) Tankers Ltd., whose long-term charters mean it is still profitable during the worst shipping-rate slump in more than a decade, says the biggest returns in 2012 will come from hauling coal and iron ore.
The Hamilton, Bermuda-based company owns four tankers and its market value now exceeds that of Frontline Ltd., whose 43 ships make it the largest supertanker operator. Knightsbridge may sell two vessels when their contracts expire next year and buy panamaxes that carry so-called dry bulk commodities, Chief Executive Officer Ola Lorentzon said in an interview.
Panamaxes, the largest carriers able to navigate the Panama Canal, will earn $13,250 a day on average next year, according to the median of nine analyst estimates compiled by Bloomberg. That’s 19 percent more than the $11,136 anticipated by forward freight agreements, traded by brokers and used to bet on future transport costs, data from the Baltic Exchange in London show.
“This company chose to be more conservative,” said Jonathan Chappell, an analyst at Evercore Partners Inc. in New York who gives Knightsbridge shares an “overweight” rating. “With the uncertainty in the market right now, it’s probably something more people wish they had done.”
All six members of the Bloomberg Tanker Index (TANKER) from Frontline to General Maritime Corp. will lose money this year as fleet capacity exceeds the number of cargoes, analyst estimates compiled by Bloomberg show. While there is also a dry-bulk shipping glut, it is shrinking faster as demand accelerates. Rates for the biggest ore and coal carriers turned profitable in September, while those for supertankers fell in April below the $30,200 a day Frontline says it needs to break even.
Frontline Rallies
Frontline climbed 26 percent in Oslo trading yesterday after saying it planned to divide the company in order to withstand the collapse in tanker rates. Frontline 2012 will take control of the newest vessels, selling $250 million of shares, of which Frontline will take 10 percent. Hemen Holding Ltd., a company indirectly controlled by Chairman John Fredriksen, will underwrite the remainder. Hemen is giving guarantees of $505.5 million, valid until Dec. 31.
Knightsbridge made money every year since it was created in 1996 by favoring long-term charters over single-voyage accords. That meant it missed out on spot rates that rose as high as $229,484 in 2007 and avoided the $7,254 they sank to in September this year, according to data from London-based Clarkson Plc, the world’s biggest shipbroker.
Oil Cargoes
Demand for iron ore, coal and other dry-bulk cargoes will grow 8.1 percent next year as the fleet of carriers expands 12 percent, Morgan Stanley estimated in a Nov. 27 report. Oil shipments will advance 2.1 percent, compared with a 9.3 percent gain in the supply of supertankers, also known as very large crude carriers, or VLCCs, the bank said.
“We’re looking at dry-bulk acquisitions because they can give a decent contribution to our yield right away with less risk,” said Stockholm-based Lorentzon, a 62-year-old chemical engineer by training. “It will recover earlier than tankers because the demand side is growing better.”
Panamaxes cost about $30 million apiece and can secure charters at almost $14,000 a day, more than double the $5,700 needed to cover operating costs, Lorentzon said. The company already owns four ore-carrying capesizes.
Vessel Surplus
While rates for dry-bulk vessels are rebounding faster than for oil tankers, the industry still faces a glut for several years. The global fleet of panamax ships expanded 33 percent to 1,934 since the end of 2007, according to Redhill, England-based IHS Fairplay. Orders at ship yards are equal to 43 percent of the existing fleet, the data show. That compares with a 12 percent gain in VLCCs, with outstanding orders at 14 percent of the fleet, according to IHS Fairplay.
Spot rates for panamaxes fell 8.2 percent to $13,499 a day this year, according to the Baltic Exchange, which publishes freight costs along more than 50 maritime routes. Rates for VLCCs averaged $21,734 a day, heading for the lowest annual reading since 1999, Clarkson data show.
Economic growth in China, the world’s biggest consumer of iron ore and coal, will slow to 9 percent next year from 9.5 percent in 2011, the International Monetary Fund estimates. The nation’s imports of iron ore, a steelmaking raw material, fell to the lowest level since February in October as coal cargoes declined to a four-month low, customs data show.
Equity Returns
The Bloomberg Dry Bulk Shipping Pureplay Index plunged 41 percent this year, and 11 of its 14 companies will report lower earnings or losses in 2011, according to analyst estimates compiled by Bloomberg. The MSCI All-Country World Index of equities fell 8.3 percent and Treasuries returned 8.5 percent, a Bank of America Corp. index shows.
A 30-month charter for one of Knightsbridge’s tankers, the Camden, built in 1995, ends in August and a five-year lease on the 1996-built Hampstead expires in April, according to its third-quarter report. The company will “struggle” to find new contracts for them, Lorentzon said.
The Mayfair has a five-year charter ending in July 2015, while the Kensington trades in the spot, or single-voyage, market. Knightsbridge’s capesizes have charters ranging from 35 months to five years, with the first expiring in January 2013.
Knightsbridge’s tankers, named for London neighborhoods, are managed by Frontline and its capesizes by Golden Ocean Group Ltd. (GOGL), also located in Hamilton. Golden Ocean is the largest shareholder in Knightsbridge, with a 10 percent stake, according to data compiled by Bloomberg.
$61.9 Million
Knightsbridge will report earnings before interest, taxes, depreciation and amortization of $61.9 million for this year, compared with $63.4 million in 2010, according to the mean of five analyst estimates compiled by Bloomberg. The shares fell 30 percent this year in New York trading, giving the company a market value of $383.2 million. Investors got $2 a share of dividends this year, data compiled by Bloomberg showed.
Frontline, also based in Hamilton, will report a net loss of $228.3 million for this year, compared with 2010 net income of $161.4 million, the mean of 20 estimates showed. The company said Nov. 22 it would pay no third-quarter dividend and may run out of cash in 2012. The shares slumped 83 percent in Oslo this year, valuing Frontline at 1.99 billion kroner ($345 million). General Maritime, the New York-based operator of 29 tankers, filed for bankruptcy protection on Nov. 17.
VLCCs on average are making owners a return of less than 0.1 percent, according to data from Drewry Shipping Consultants Ltd., a London-based adviser to maritime companies. That compares with 9.6 percent for panamaxes, according to the data, which comprise asset prices and rates for five-year-old ships.
“What we’re seeking to do is keep a predictable and reasonable dividend for shareholders,” Lorentzon said. “Right now it’s a very nice way, because we can provide dividends to our shareholders, which a lot of companies can’t.”
To contact

Chemicals Seen Boosting Odfjell as Demand Swamps Fleet:
By Isaac Arnsdorf and Alaric Nightingale
November 28, 2011 7:01 PM EST

Vessels hauling chemicals used to make everything from paint to plastics may earn the most in four years in 2012 as volumes exceed fleet capacity, boosting profit for tanker owners Stolt-Nielsen Ltd. (SNI) and Odfjell SE. (ODF)
Demand will gain 5 percent next year, more than twice the 2.3 percent expansion in the number of carriers, according to the median estimates in a Bloomberg survey of eight analysts. Rates will rise 10 percent in 2012 and 15 percent in 2013, says investment bank SEB Enskilda. Shares of Odfjell will almost double and those of Stolt-Nielsen will climb 48 percent within 12 months, according to the mean of as many as six analyst predictions compiled by Bloomberg.
While vessels hauling crude and coal lost money for owners this year and rates for cargo boxes tumbled 64 percent since January, Odfjell and London-based Stolt-Nielsen will report profit for at least the next two years, the analyst estimates show. The fleet of the largest oil tankers is the biggest in three decades and the number of capesizes hauling dry-bulk commodities reached a record. The carrying capacity of chemical tankers declined 21 percent this year, the United Nations says.
“The market is a lot tighter than people think,” said Erik Folkeson Jensen, an analyst at First Securities ASA in Oslo whose recommendations on the shares of shipping companies returned 8.5 percent in the past three months. “We will have an improvement next year and a bigger one in 2013.”
Trade Route
Rates on the benchmark Houston-to-Asiatrade route rose 65 percent to an average $101.67 a metric ton since June, the biggest rally since April 2009, according to data from London- based shipbroker Clarkson Plc. The cost of hauling chemicals such as styrene and benzene, used to make paint, plastics, soaps and rubber, averaged $63.62 a ton in 2011 across 15 routes, the highest level since 2008, the data show.
U.S. exports of the 20 largest chemicals made from oil and natural gas rose 4.7 percent in the first nine months of this year, the most recent data show.
Demand is strengthening in part because of this year’s 22 percent plunge in U.S. natural-gas prices, which lowers costs for chemical companies and increases their competitiveness against Asian producers who rely on naphtha derived from crude, according to Ole Stenhagen, an Oslo-based analyst at SEB Enskilda. Oil advanced 7.5 percent in New York since the start of January.
Sulfuric Acid
Chinese purchases of eight chemical cargoes including styrene, sulfuric acid and glycol were more than 20 percent higher in September than a year earlier, according to First Securities. The Asian nation is the largest buyer of oil- and gas-based chemicals, importing 26.4 million tons last year, according to Drewry Maritime Research. The U.S. and Saudi Arabia are the top two exporters, the London-based group says.
The jump in trade from the U.S. to Asia is spurring owners to divert vessels in the Atlantic Ocean to compete for business, potentially curbing the rally in rates, said Rohit Pattnaik, an analyst for Drewry in Gurgaon, India.
Volumes from the U.S. are being driven by producers seeking to cut inventories before the end of the year, reducing taxes paid on stockpiles, according to RS Platou Markets AS, the investment-banking unit of Norway’s largest shipbroker. That may mean shipments decline at the start of 2012.
IMF Estimate
Strengthening demand for chemicals depends on economic expansion. Chinese growth will slow to 9 percent next year from 9.5 percent in 2011, the International Monetary Fund predicts. The Washington-based group also anticipates weaker expansion in the euro region, India, Latin America and the Middle East. The IMF in September cut its 2012 growth forecast for the global economy to 4 percent from 4.5 percent.
Chinese growth will help chemical producers even as they pay higher freight costs. Midland, Michigan-based Dow Chemical Co. (DOW), the largest U.S. chemical maker, will report a 34 percent jump in earnings before interest, taxes, depreciation and amortization to $8.17 billion for 2011, according to the mean of 14 analyst estimates compiled by Bloomberg.
Natural gas traded in New York declined this year as production from shale fields in the U.S. expands more quickly than demand. Output will gain 6.1 percent this year, against 1.7 percent for demand, according to the Energy Department.
Stolt-Nielsen will report a 4.4 percent increase in net income to $110.75 million this year, the most since 2008, according to the mean of eight analyst estimates compiled by Bloomberg. Profit will reach $125.8 million in 2012 and $179 million in the following year, estimates show.
‘Buy’ Advice
While the shares fell 29 percent to 101 kroner in Oslo trading this year, nine of 10 analysts covering the company tracked by Bloomberg recommend buying the stock, anticipating on average that it will reach 149.60 kroner within 12 months.
Odfjell, based in Bergen, Norway, will report record net income of $240.4 million this year, including a one-time gain of $270 million, the mean of seven estimates shows. Profit will be $21.1 million next year and almost $64 million in 2013, according to analysts’ projections.
The shares fell 44 percent to 30.4 kroner in Oslo this year and will reach 58.82 kroner in 12 months, according to the mean prediction of analysts tracked by Bloomberg. Nine of 10 analysts rate the stock a “buy.”
Frontline Ltd., the biggest operator of the largest crude tankers, will report a loss for 2011, the mean of as many as 19 analyst estimates shows. The Hamilton, Bermuda-based company said Nov. 22 it may run out of cash early in 2012 and is seeking talks with lenders. The shares fell 89 percent this year.
43% Drop
A measure of the combined earnings of the 14-company Bloomberg Pure Play Dry Bulk Shipping Index will decline 43 percent this year, according to data compiled by Bloomberg. The gauge tumbled 44 percent this year.
Rates for very large crude carriers fell 9.4 percent this year, according to Clarkson. Hire costs for capesizes averaged $14,420, below the $20,000 they need to break even, according to data from the London-based Baltic Exchange, which publishes freight rates along more than 50 maritime routes.
Earnings for chemical tankers are difficult to compile because the vessels carry about 600 different kinds of cargo, according to Odfjell. As much as 40 percent of the fleet can also be deployed to haul oil products, said Folkeson Jensen of First Securities.
“Right now chemical-tanker equities with favorable prospects are unjustifiably lumped in with struggling tanker companies,” said Stenhagen of SEB Enskilda. “The outlook for 2012 and 2013 is very good, and both Stolt-Nielsen and Odfjell have the strength and leverage to benefit.”
To contact the reporters on this story: Isaac Arnsdorf in London atiarnsdorf@bloomberg.net; Alaric Nightingale in London atanightingal1@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace atswallace6@bloomberg.net

Maersk Shares Poised to Benefit as Overcapacity Overwhelms Rivals: Freight
By Christian Wienberg and Niklas Magnusson
November 16, 2011 5:12 AM EST

A.P. Moeller-Maersk A/S, owner of the world’s largest container line, is prepared to outlast rivals as the industry faces four years of overcapacity.
“We are actually quite well positioned for a longer stretch of tough competition,” Nils Smedegaard Andersen, chief executive officer at the Copenhagen-based company, said in a telephone interview. “It would be natural if the smaller players in this business, or their banks, start questioning whether it’s a good idea to keep competing.”
Maersk Line, with almost 16 percent of the global container market, is betting it can outlast such publicly traded competitors as Japan’s Mitsui O.S.K. Lines Ltd. and Nippon Yusen K.K., both of which have cut capacity to cope with falling freight rates. Success may help reverse a Maersk share decline this year of 28 percent, compared with a fall of 17 percent in the OMX Copenhagen 20 Index.
“Maersk is the container line that has the scale and the strong balance sheet to play this volume game, particularly as it’s better than the competition on keeping costs low,” said Per Kronborg Jensen, a senior portfolio manager at Sparinvest A/S. It owns just over 0.6 percent of Maersk “B” shares.
The container industry will lose money this year as oversupply sends freight rates plunging, Andersen said. In 2009, the first year the industry failed to turn a profit since the 1970s, Maersk Line idled ships. The company won’t do that this time and is ready to reduce prices to preserve market share, Andersen said.
Economies of Scale
Maersk is better positioned than rivals to ride out the container glut because its size helps it keep costs down through economies of scale, Jacob Pedersen, an analyst at Sydbank A/S, said by phone. Maersk’s parent, which also owns the Nordic region’s second-largest oil company, provides a strong balance sheet to help absorb losses, he said.
“Maersk Line is willing to sacrifice some earnings in the short term for a better and more profitable market in the long term,” Pedersen said. “In the last crisis, Maersk Line was among those that helped the sector recover, which probably saved some weak rivals from bankruptcy. This time, Maersk is leaving it to those with the most at stake to lay up ships and improve conditions.” He has a “buy” rating on the shares.
Cutting Back
Smaller shipping lines have already scaled down, according to shipping-data provider Alphaliner. Cia. Sud Americana de Vapores SA, Horizon Lines Inc., Grand China Shipping and TCC ASA, which had a combined market share of as much as 4.5 percent on transpacific trade, have cut back, Paris-based Alphaliner said in a note distributed Nov. 8.
Mitsui O.S.K. Lines and Nippon Yusen, Japan’s largest shipping lines, last month cut capacity after reversing profit forecasts to loss predictions for this fiscal year. The global fleet has expanded for two years to a record, according to IHS Fairplay in Redhill, U.K.
“The hardball game could continue well into 2012,” Finn Bjarke Petersen, an analyst at Nordea Bank AB, the Nordic region’s biggest lender, said in a Nov. 10 note to clients. The world’s second- and third-largest container lines, Mediterranean Shipping Co. and CMA CGM SA, also plan to squeeze rivals out of the market, said Copenhagen-based Petersen, who has a “buy” recommendation on Maersk shares.
Global Carrier
MSC, based in Geneva, didn’t respond to e-mailed questions about its strategy.
“CMA CGM is constantly adapting to the changing economic environment and looking for ways to improve its business lines,” Anne-France Malrieu, a spokeswoman for Marseille-based CMA, said in an e-mailed response to questions. “Being a global carrier enables CMA CGM to benefit from growing regions around the world.”
Hamburg Sued, the world’s 14th-largest container shipping line according to Alphaliner, has criticized the price war between larger rivals, Hamburger Abendblatt reported today, citing Hamburg Sued Chief Executive Officer Ottmar Gast.
The hunt for market share seems more important for some companies than profitability, which means some shipping lines may be pushed to their limits, Gast said, according to the newspaper.
Maersk Line last week lowered its full-year forecast to a net loss from an August prediction of a “modest” profit. The unit lost a net 1.58 billion kroner ($288 million) in the third quarter versus a 5.9 billion kroner profit a year earlier.
Too Many Ships
The line outperformed its peers in the first six months of the year, Andersen said. Its earnings margin before interest and taxes was 3 percentage points higher than the industry average, giving it more scope to weather industry losses, he said in the Nov. 9 interview.
“There’s already overcapacity and the order books for new ships are still big, so I don’t think that freight rates will recover enough in 2012 to make it an attractive industry to be in,” Andersen said. “There’s no need for new ships the next four years.”
Maersk’s global freight rates fell 12 percent in the third quarter amid a 16 percent increase in shipping volumes as too many vessels competed for orders, according to the company’s Nov. 9 earnings report.
“The beginning of next year will be quite difficult,” Andersen told Bloomberg Television in an interview also broadcast on Nov. 9. “The industry has to clean itself up by not placing orders in the next years.”
No Recovery
Shipping traders are betting that the container market won’t recover next year, according to data from Clarkson Securities Ltd., a unit of the world’s largest shipbroker. The cost of shipping Asian-made goods to the West Coast of the U.S. will decline 0.8 percent from this year’s average to $1,688 per 40-foot container next year, according to derivative prices provided by Clarkson.
Maersk Line’s strategy could help restore the balance between supply and demand and make the industry profitable again, Sydbank’s Pedersen said. Still, there’s a risk the effect will be limited as vessels owned by bankrupt shipping lines re-enter the market after assets are liquidated, he said.
Smaller shipping companies may also come under pressure from their banks, according to Max Johns, a spokesman for Germany’s VDR shipping association. Global capital requirements, which are forcing lenders to boost equity to back up loans, mean ship finance is becoming less attractive for banks, he said.
Impatient Lenders?
Lenders “cannot be patient forever,” Johns said.
Jensen’s fund has no plans to change its holdings as its Maersk shares are a “long-term” investment, he said. “This obviously affects the short-term return we’ll get, but if this is what Maersk believes is the right thing to do to emerge stronger when freight markets improve, then we’re behind it.”
A.P. Moeller-Maersk was founded in 1904 when Arnold Peter Moeller together with his father bought a second-hand ship. Today, the company, Denmark’s biggest, employs more than 100,000 people in 130 countries. It also owns a supermarket chain, an oil drilling unit and a stake in Denmark’s biggest lender, Danske Bank A/S.
Maersk Line’s strategy has so far helped the company increase its market share to 15.9 percent as of Nov. 14, compared with 14.5 percent at the beginning of the year, according to Alphaliner data. The top five container lines hold about 45.6 percent of the market, while the next 25 hold a total 43.2 percent.
“We’re not holding back on offering competitive rates,” Andersen said. “If the market declines, then we follow.”
To contact the reporters on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net; Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net
To contact the editors responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net or Angela Cullen at acullen8@bloomberg.net

China Shunning Biggest Ore Ships Shows $2.3 Billion Vale Mistake: Freight
By Bloomberg News
November 22, 2011 7:49 PM EST

The Vale (VALE) Brasil, the biggest commodity ship ever built, was designed to carry iron ore to China from South America. After six months in operation, it hasn’t done that once.
China’s refusal to accept the Brasil has derailed Vale SA (VALE3)’s push to control shipments to its biggest customer by building up a fleet of 35 ships, each almost as large as the Bank of America Tower in New York. Rio de Janeiro-based Vale, the world’s biggest iron ore miner, ships about 45 percent of sales to China, the largest consumer of the steelmaking ingredient.
Vale’s plan, which includes buying 19 vessels for $2.3 billion, has spurred opposition from Chinese shipowners who say it will worsen overcapacity, slumping cargo rates and industrywide losses. Steelmakers are also likely against it as the ships would give Vale more control over pricing and delivery, said Chang Tao, a China Merchants Securities Co. analyst.
“Nobody in China wants Vale’s fleet to come,” he said. “Not shipping lines, not shipowners, not steelmakers.”
The miner may struggle to find alternative uses for all ships as no other markets are as big, he said. Vale also likely can’t cancel vessel orders or quit leasing contracts without paying “very heavy penalties,” said Ralph Leszczynski, the Beijing-based head of research at shipbroker Banchero Costa & Co.
“I’m pretty sure that Vale themselves have by now realized that they made a big mistake,” he said. “I find it really incredible that they committed so much money in this project without first getting written assurances from the Chinese side that they would be able to use the ships.”
Daewoo, Rongsheng
Vale’s press-relations office in Rio de Janeiro declined to comment. The miner is buying vessels from China Rongsheng Heavy Industries Group Holdings Ltd. and Daewoo Shipbuilding & Marine Engineering Co. (042660) It will also lease eight from STX Pan Ocean Co. under a $5.8 billion 25-year deal, according to 2009 statements from the Seoul-based shipping line.
Vale’s then-chief executive officer Roger Agnelli oversaw agreements for the 400,000 deadweight-ton vessels to reduce a reliance on outside shipping lines and risks from changes in freight costs. The Baltic Dry Index, a benchmark for global commodity-shipping rates, fluctuated more than 40 percent on an annual basis every year except one from 2001 to 2010.
130 Million Tons
The Vale vessels are about twice as big as the capesize ships that are now generally used to ferry commodities from Brazil to China. The miner plans to send about 130 million tons of iron ore on the route both this year and next.
The company is also investing $1.37 billion to set up a distribution centre in Malaysia that will be able to handle the very large ore carriers. Transferring cargo there to smaller vessels for shipment to China would likely increase freight costs, eroding at least some of the gains from the larger vessels’ size and fuel efficiency, said China Merchants’ Chang.
Vale has held talks with Chinese shipping lines about selling or leasing the about 360-meter-long vessels, Teddy Tang, the chief financial officer of its China operations, said in September. No deals had been reached.
The China Shipowners Association, whose members hold about 80 percent of the nation’s shipping capacity, has advised lines not to take the vessels, said Executive Vice Chairman Zhang Shouguo.
“The most important thing for Vale is to stop building,” said Zhang, a former deputy director in the transport ministry’s shipping division. “The additional capacity will exacerbate the already bad freight market.”
The China Iron & Steel Association has no position on suppliers’ shipping operations as long as they aren’t used to manipulate iron-ore prices, said General Secretary Zhang Changfu.
Rongsheng Heavy
The Brasil was this week in the Arabian Sea headed for Oman, according to data on the Bloomberg terminal. The ship was handed over to Vale by Daewoo Shipbuilding in May. The Seoul-based shipyard has also delivered two other similar-sized vessels, as it works through orders for seven worth a total of $748 million. More deliveries will follow next year and work is progressing as planned, the shipbuilder said by e-mail.
Vale also ordered 12 of the very large ore carriers from Rongsheng Heavy for $1.6 billion in 2008. The Shanghai-based shipbuilder expects to deliver the first this month, said Chief Executive Officer Chen Qiang. The handover is about two months late because of certification issues, he said. The company has begun building the other 11 on-order ships, with Vale paying in installments as work progresses, he said.
“I am not worried about any possibility of Vale canceling orders,” Chen said. “They need the ships to carry iron ore, and the vessels are greener and more advanced.”
Management Shakeup
Vale CEO Murilo Ferreira, who took on the job in May, this week named a new logistics head, Humberto Freitas, as part of a management reshuffle. The previous operations head, Eduardo Bartolomeo, will run the company’s fertilizers and coal unit.
Ferreira’s new regime may also herald a change in the approach to shipping, which could be announced at an investor day next week, said Rafael Weber, a Porto Alegre, Brazil-based Geracao Futuro Corretora analyst.
“They can’t fight with their main customer,” he said. “The company may decide against going ahead with it to avoid discord with the Chinese government.”
China’s Transport Minister Li Shenglin said earlier this month that the government will strengthen control of vessel deliveries and “guide the orderly arrival” of new ships amid tumbling rates and losses for shipping lines. China Cosco Holdings Co., the nation’s largest sea-cargo carrier, lost 4.8 billion yuan ($755 million) in the first nine months.
China Ports
The Vale Brasil was diverted on its maiden voyage in June from its original destination of Dalian, China to Italy after a request from a European customer and because “draft services” at the Chinese port weren’t ready, Ferreira said in July. The ships will “undoubtedly” go to China when needed, he said.
The ports of Dalian, Qingdao and Majishan near Shanghai are able to handle Brasil-sized vessels, Vale said in June. Qingdao, northeast China, hasn’t opened its facility because of “restrictions,” Li Yuzhai, a spokesman for Qingdao Port (Group) Co., said yesterday.
Calls to Majishan port yesterday went unanswered. Dalian Port PDA Co. (2880)’s press office referred enquiries to the company’s iron-ore handling unit. Calls there weren’t answered. A call to the ministry of transport wasn’t answered.
STX Pan Ocean has begun operating one of its eight VLOCs for Vale. The vessel is awaiting loading in Brazil, the shipping line said by e-mail yesterday. No changes to its agreement with Vale are expected, it said. The shipping line’s vessels are being built by affiliate STX Offshore & Shipbuilding Co. (067250)
BW Group, Oman
BW Group will also operate four vessels for Vale, the miner said in 2007. One, the Berge Everest, was due to be delivered in September by Bohai Shipbuilding Heavy Industry Co., according to a statement on the website of BW affiliate Berge Bulk.
Rongsheng Heavy is also building four VLOCs for Oman Shipping Co., which will be leased to Vale and used to haul commodities to the sultanate. The vessels are all due to be delivered in the second half of 2012, the shipping line said by e-mail yesterday.
Still, Vale needs to use ships on China routes to fully utilize the fleet, and the country’s opposition to the vessels is unlikely to weaken, said Huang Wenlong, a Hong Kong-based analyst with BOC International Holdings Ltd.
“Once Vale moves its own iron ore, its control on the supply of iron ore extends into shipping, further diminishing Chinese steelmakers’ bargaining power,” he said. “That is a situation China doesn’t want to see.”
–Jasmine Wang and Helen Yuan with assistance from Juan Pablo Spinetto in Rio De Janeiro, Kyunghee Park in Singapore, Michelle Wiese Bockmann in London and Tamara Walid in Dubai. Editors: Neil Denslow, Vipin V. Nair
To contact the reporters on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.