New York: Whilst all shipping markets tend to ebb and flow in line with the cycles of world trade, the divergence between the collapse in the dry bulk sector and the relative health of the tanker market is a puzzle. The continuing decline in oil prices, even after OPEC opted for a 1.5m b/d production cut in Vienna last week, suggests that market sentiment feels oil demand will continue to ease in the weeks ahead. However, New York broker Poten & Partners is not convinced. In its most recent weekly report, Poten notes the "relative steadiness of the tanker market" which, in comparison with dry bulk, "seems to have different fundamentals to help insulate from insolvency".
The analysts compare rates per ton of cargo in the dry and liquid bulk sectors. VLCC rates from the Arabian Gulf to Asia have fluctuated between a low point of just under $10 a ton to the odd peak of around $40 a ton over the last four years or so. Capesize rates from South America to the Far East, on the other hand, have been much more volatile. They have ranged from low points of around $20, hitting $40 in May 2007 and staying well above that level until a few weeks ago. Rates hit their peak in July this year, at more than $100 a ton.
Poten says that demand for oil is continuing to grow. Despite downward revisions recently as the global economy slows, analysts are still expecting consumption growth to lie between 300,000 and 600,000 barrels a day next year, the firm says. In marked contrast to the dry bulk market, "the oil market for the most part consists of blue-chip charterers with very few ships on time charter that are subsequently out-chartered at higher rates," Poten points out. "Hence the likelihood of a daisy chain of defaults is quite small."
"Major oil companies and reputable traders continue to provide stability to the tanker market," it says. However, the downturn does present opportunities. A general tightening in credit creates "a unique opportunity" for well-balanced companies to use cash on hand to buy assets from weaker competitors. "Mergers, acquisition and divestment of assets are on the horizon and will lead to further consolidation across the tanker industry," Poten concludes. [27/10/08]
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