Soaring steel prices are now a major concern for
leading shipbuilders. Uncertainty about spiralling
material costs is even causing some yards to
defer new orders, market reports indicate. “The lack of
steel in some shipyards of the three major shipbuilding
nations is causing newbuildings for 2007 and 2008 to be
delayed,” says New York tanker broker Poten & Partners
in a recent market report. “Some shipyards are not
accepting any more ship orders beyond late 2007 or
2008 delivery because of the lack of berth availability,
insecurity stemming from the dollar’s weakness, as well
as uncertain steel cost,” the broker
says.
China may as well build ships,
says Poten, as “they’re taking all the
steel.” Steel prices have risen by $140
per ldt over the last two years, largely
on the back of Chinese demand,
Poten declares. And, commenting on
current demolition rates, the New
York firm explains that “steel needed
to build bridges, roads and housing to
accommodate the millions of people
relocating to China’s urban areas from remote rural villages
has sent scrap prices above $400 per ldt from the
low $100s/ldt approximately two years ago.”
The fact that sophisticated vessels such as LNG carriers
and containerships are in heavy demand is further
taxing shipyard capacity and new ship prices are rocketing.
By way of comparison, Poten points out that a VLCC
cost about $70 mil. to build in 1999. This month, says
Poten, the price for a new VLCC has risen to $86 mil.,
based on 2007 delivery. However, current VLCC market
rates, which averaged W 97 last month from the Arabian
Gulf to the Far East, equivalent to $61,000 a day, are
expected to decline to lower levels, with seasonal change,
says Poten. But owners are falling over themselves to get
their hands on prompt tonnage. This, says Poten, has
meant that modern secondhand VLCCs now cost just
about as much as new ones. Owners don’t want to wait
until 2007/8-they want new tonnage now!
Says Poten, “Suezmaxes, Aframaxes and Panamaxes
are seeing the same type of price increases.” A Suezmax
newbuilding is quoted at just over $57 mil. this month, the
broker reports, the highest price in a decade. Meanwhile,
Aframaxes are being quoted at up to $47 mil., up from $36
mil. in April 2000 and Panamaxes prices are around $37
mil., up from $27 mil. two years ago.
In this latest bull market run, tanker companies continue
to report record earnings. Most recently Teekay has
declared record profits, with first quarter net income of
$189 mil., up 253% from $53.6 mil. in
the corresponding period last year. The
company explained that high spot rates
were partly the reason for the better
figures, whilst the integration of Navion
was another key factor.
Meanwhile, a senior executive at
tanker company Stelmar declared a
bullish view of the future. Peter
Goodfellow, chief executive, told
Bloomberg News that current strong
demand in both the East and West, led
by China and the US, is very unusual and provided the
company with a good opportunity to reposition ships profitably.
Historically, it was not easy to find profitable cargoes
to reposition ships for repairs in the East, Goodfellow
said, but now Asian growth was far outstripping expansion
in the US.
OMI meanwhile has reported its best ever quarter and
anticipates that the strong tanker market will last for several
years. The first quarter profit of $56.41 mil. was up
from $25.73 mil. one year earlier and was not only the
company’s best ever figure, but was actually more than
annual income in all but two of the years since 1984.
According to OMI figures, the world’s tanker fleet comprised
295.3 mil. dwt at the end of March. The orderbook
of just over 83 mil. dwt represented 28.1% of the fleet.
The writer is a journalist based in the UK.
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