Anyone lucky enough to start 2004 with a
few spare dollars in his pocket could do
worse than to stick a wad into tanker
stocks, at least if brokers are to be believed.
Early January wine-bar chat in London saw
tanker brokers arguing over which stocks to go
for as likely outperformers this year. Most
agreed, however, that for once the sector looks
bound to provide some decent yields in the
months ahead.
New York investment bank Jefferies & Co. certainly
thinks so, having raised its 12-month share
price forecasts for all of the tanker shares it
tracks. Citing rising oil demand,
low inventories and increasing
discrimination against singlehulled
tankers, the bank
believes oil production will rise
and demand for modern tankers
will follow suit. Its predictions
for key tanker stocks include
Frontline, the world’s largest
tanker operator, up from $26 to
$33; Teekay, up from $67 to
$75; Tsakos Energy Navigation, up from $23 to
$27; and Stelmar, up from $24 to $28.
The bank also suggested that Torm’s share
price could hit $45 this year. And, in fact, within
a few days, the Danish tanker operator had
exceeded this price. Following yet another
upward adjustment of 2003 profits and an optimistic
forecast for the year ahead, Torm’s shares
gained almost 50% in three days trading. On one
day alone, the stock rose by more than a fifth,
hitting Dk280 ($47.7) briefly, before settling
back to Dk266 ($45.3).
Analysts admitted to being somewhat puzzled.
Yes, they agreed, the market is firm and shipyards
are full. And Torm is well-placed with a
modern fleet of double-hulled units. But perhaps
Teekay’s 16% stake, which the Canadian company
bought at a mere Dk83 ($14.1), could have
something to do with it, some were wondering.
On the other hand, Torm’s prediction of record
net profits for 2003-in the region of $165 million
and buoyed by its holding in bulk shipping group
Norden-caused considerable excitement. Looking
forward, Torm expects a net profit from its own
activities of at least Dk500 million, or $85 million
this year, another reason for some confidence.
The tanker market in general has been
buoyed by rapidly rising demand in China.
According to figures from New York tanker broker
Poten & Partners, there were a total of 850 spot
fixtures to China during 2003,
mostly benefiting VLCCs and
Aframax tankers. The figure was
up from 790 in 2002 and 640 in
2001. The increase in tonnage
terms is even more marked.
According to Poten’s figures,
Chinese oil imports on vessels
fixed in the spot market rose
from 59 million tons in 2001, to
78 million tons in 2002, to 89
million tons in 2003.
Chinese demand is rising so fast that Pacific
Basin exporters cannot keep pace. Indonesian
exports are declining, says Poten, and China is
therefore increasingly reliant on the Middle East
and West Africa, thus benefiting VLCC owners.
The significance of Chinese demand should not
be underestimated, Poten believes, pointing out
that the country’s objective to quadruple economic
output by 2020 will require compound economic
growth of 7.2% a year fuelled by vast
amounts of energy. “China accounts for nearly
30% of incremental global demand for oil,” Poten
declares, “and perhaps as much, if not more, of
incremental tanker demand.”
The writer is a journalist based in the UK.
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