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Meltdown: SCI, GE Shipping likely to take a hit
Abhineet Kumar in Mumbai | January 06, 2009 09:33 IST
Shipping Corporation of India [Get Quote], GE Shipping and other energy carriers are expected to take a hit on their revenue as the key tanker segment is feeling the pinch of economic slowdown.
The freight rate for the very large crude carriers in the spot market has declined to an average $46,426 a day for the quarter ending December 31, about 21 per cent lower than the corresponding period of the previous year.
In the same period, smaller crude carriers such as Suezmax rose by about 9 per cent to an average of $42,801 a day. Freight rate for Aframax, a carrier smaller than Suezmax, rose by 25 per cent to an average of $28,628 a day.
"As the parcel sizes for shipping crude comes down, demand for smaller vessels rise," said a senior official at SCI.
"Now, even the smaller vessels of the size of Suezmax will face pressure on freight rates as demand continues to slow, said the official at the government-owned, India's largest shipping company.
"The company has three VLCCs, Six Suezmax and four Aframax vessels apart from some other smaller crude carriers. The company did not disclose how many of its VLCCs and Suezmax are running on spot market rates.
GE shipping, India's second largest shipping company, is another crude carrier having six Suezmax and six Aframax tankers. "OPEC cut is obviously a big hit," said a company spokesperson.
"We will wait and see," she said. At least half of the twelve crude carriers of GE Shipping run on spot market.
According to an analyst's estimate, there is already a reduction of 3 million barrel a day in the production of crude since August.Another Mumbai-based energy carrier Varun Shipping is expecting pressure on the Suezmax segment.
"Besides the seasonal demand going down from the next quarter, there would be an additional pressure of production cut," said Vikram Suryavanshi, an analyst with Mumbai-based Karvy Stock Broking. In winter, the demand for tankers increase as the western countries have large requirement of fuel for heating purpose.
"Our outlook for tanker rates for the current quarter is negative," he said. Essar Shipping [Get Quote], Mumbai-based shipping company having two VLCCs expect crude to be trading at $35 to $ 40 a barrel for the next six months, said its chief financial officer V Ashok.
Mercator Lines [Get Quote], which has one VLCC and one Suezmax and five Aframax vessels, is also expecting the freight rates for tankers taking a hit, said its chief financial officer, Nitin Kolhatkar.
Varun Shipping, which has three double-haul modern Aframax carriers, expects Suezmax rates to come down.
"We expect the freight rates for Aframax to stabilise at the current level while Suezmax rates would be littler lower," said Arun Mehta, chairman and managing director of the company.
Suezmax vessels are typically of 1.5 lakh deadwight tonne while Aframax ships have a capacity of 80,000 tonne to 1,20,000 deadweight tonne.
"The VLCCs, which have seen the maximum hit in the current slowdown, are of the size of 1.6 lakh to 3.1 lakh deadweight tonne.
Shipping companies have been already under pressure with historical downfall of about 94 per cent in the freight rate for dry bulk carriers.
Baltic Dry Index, the global benchmark for dry bulk carriers, fell to 666 in December, from its all-time high of 11,689, about six months ago, as the global economy slowed down.