Tanker rates expected to revive…ICICI Sec

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Tanker rates expected to revive…
• The Baltic Dry Index (BDI) moved up by 9% to 2678 in October
2010 while the Capesize index recorded a sharp gain of 26% to
4262. The Panamax index after correcting by 17% to 2462 in
September remained subdued with a 2% decline in October at
2410 level. The Panamax index declined owing to a decline of
Chinese iron ore imports from India


• The Dirty Tanker Index rose 10.5% to 758 levels while the Clean
Tanker Index remained flat with a 0.5% rise to 627 level in October
2010. The Clean Tanker Index continued to remain subdued after
two consecutive months of decline while Dirty Tanker Index
recorded a gain after five consecutive months of decline
• LPG freight rates across asset categories continued to show
positive movement for the second consecutive month after being
subdued for a long period
• Utilisation levels for drill ships, semi-subs and jack-up rigs
declined to 76%, 85% and 74% in October 2010 from 80%, 87%
and 76% in September 2010, respectively
• New build tanker asset prices declined on an average by ~3-8%
while new build dry bulk asset prices for panamax and supramax
increased by an average of ~2-3%. Prices for capsize vessels
declined by 2%
• New build orders for dry bulk vessels increased from 68 to 92
vessels while that for tankers increased from 38 to 56 vessels in
October 2010
• Demolition of vessels decreased from 119 vessels in September
2010 to 74 vessels in October. However, in tonnage terms, 1.7
million DWT of fleet was scrapped as against 1.6 in the previous
month. Average scrap prices rose to $360 per LDT in October 2010
Outlook
Dry bulkers
Dry bulk freight rates are expected to decline in November 2010. We
remain cautious as steel production in China continues to moderate. This
would necessitate a drop in iron ore inventory levels, which would result
in lower imports of iron ore leading to a drop in dry bulk freight rates.
Tankers
Crude oil tanker freight rates are likely to recover from the low levels
recorded in the previous month. We believe crude and product carrier
freight rates would gradually recover and strengthen over the next couple
of months on account of heating oil demand in the US and Europe.
LPG carriers
LPG freight rates are likely to continue their recovery in November 2010.
Offshore vessels
Utilisation level and day rates are likely to remain firm in November on
account of steady pace of global exploration and drilling activities.

VLCC freight rates touched distress levels in October with a decline of
almost 87% to $337. However, freight rates of Suezmax and Aframax
carriers increased by 124% to $7397 and 3% to $5065, respectively. VLCC
carrier freight rates crashed during the month. However, such low rates
are not sustainable as it would be insufficient to meet even the operating
costs for fleet operators.
Dry bulk freight rates showed a mixed trend. The rates for Capesize
vessels continued to show strength and increased by 5% in October while
Panamax, Supramax and Handysize vessel rates declined by 11%, 7%,
and 15%, respectively.