Fracking Boom Sends Chemical Tankers to Five-Year High - Hellenic Shipping News Worldwide

Posted - July 31, 2013 -   Hellenic Shipping News Worldwide

The boom in U.S. natural-gas supplies is boosting chemical exports to Asia, driving up demand for specialized ships that carry the products and sending freight rates to a five-year high.
Earnings for tankers carrying 20,000 metric-ton cargoes in stainless-steel tanks will rise 12 percent to an average of $14,500 a day next year, the most since 2009, according to RS Platou Markets AS, the investment-banking unit of Norway’s largest shipbroking group. Analysts raised their estimates for shares of Stolt-Nielsen (SNI) Ltd., the biggest owner of the vessels, and expect them to rise 24 percent in 12 months, instead of 4.9 percent as recently as May 31.
Enlarge image Fracking Boom Sends Chemical Tankers to Five-Year High
Shares of Stolt-Nielsen, which operates 155 tankers, gained 20 percent to 138 kroner ($23.26) in Oslo this year and will reach 171.25 kroner in 12 months, according to the average of four analyst estimates compiled by Bloomberg. Photographer: Andrew Wheeler/Bloomberg
The 24 percent increase in U.S. natural-gas output over the past decade is cutting costs for the nation’s chemicals producers, who will boost exports of materials used in everything from paints to plastics to a record in 2013. China, the largest importer, is on course to buy more than ever, pushing fleet use to 87.2 percent of available transportation capacity this year and 89.8 percent in 2014, the highest since 2008, Platou estimates.
“This is wonderful because it will ensure there will be more demand and the trade leg is longer,” said Rohit Pattnaik, a Gurgaon, India-based analyst at Drewry Maritime Research, an industry consultant. “The impact of U.S. petrochemicals is going to be significant for the recovery of chemical tankers.”
Revised Estimates
The price of hiring vessels on 15 trade routes rose 5.8 percent to $66.60 a ton in the past year and is headed for the highest annual average since at least 1996, according to data from Clarkson Plc (CKN), the world’s largest shipbroker.
Shares of Stolt-Nielsen, which operates 155 tankers, gained 20 percent to 138 kroner ($23.26) in Oslo this year and will reach 171.25 kroner in 12 months, according to the average of four analyst estimates compiled by Bloomberg. Just two months ago, they were anticipating a gain to 144.80 kroner. The London-based company’s profit will almost double to $116 million next year, the most since 2008, the average of 10 estimates shows.
Demand for chemical tankers will advance 3.6 percent this year while the fleet expands 2 percent, according to Ardmore Shipping Corp. (ASC), an owner of three of the vessels in Cork, Ireland. Shipments from the U.S. rose 4.6 percent to a record 13.8 million tons in 2012 and will be higher again this year, according to Drewry.
Gas Slump
Cargoes are increasing because natural-gas output in the U.S. rose to 2.48 trillion cubic feet in April, the highest for the time of year on record, Energy Department data show. Production was 2 trillion cubic feet a decade ago.
The expansion drove down the fuel’s price by 78 percent from its peak in 2005, improving margins for chemical makers using gas-based feedstocks. Plants using ethane to make ethylene, a component for detergents and plastics, are earning $1,034 a ton. Margins for European manufacturers using naphtha, a refined oil product, are less than half that because crude is only 27 percent below its peak in London trading, Bloomberg Industries data show.
While shipments to Asia may increase, U.S. plants already anticipated gains and major new capacity additions aren’t scheduled to finish until 2015, said Bill Bryant, Stolt-Nielsen’s managing director for Middle East and Africa, who has worked in the chemicals industry for more than 20 years.
Chinese Growth
Slowing growth in China could also hinder gains in freight. The world’s second-largest economy will expand 7.5 percent this year and next, the weakest since 1990, according to the average of 57 economist estimates surveyed by Bloomberg. The 17-nation euro area will contract 0.6 percent this year, the same as in 2012.
The improving U.S. economy could also increase domestic consumption of chemicals. Growth will quicken to 2.7 percent next year, the fastest in eight years, according to 79 economist estimates compiled by Bloomberg.
The chemical-shipping market has a smaller glut than crude-oil tankers and dry-bulk carriers because owners ordered fewer new vessels before the 2008-09 recession. Contracts with shipyards peaked at 26 percent of existing capacity in 2008, compared with 48 percent for oil tankers and 74 percent for bulkers, according to data from IHS Fairplay, a Redhill, England-based maritime research company.
Double Costs
The $14,500 daily rate predicted by Platou would be double what the ships need to cover expenses including crew, insurance and repairs, according to data from Moore Stephens LLP, an industry consultant. Rates for supertankers and Capesize iron-ore carriers averaged less than their operating costs this year. The ClarkSea Index, a gauge of industrywide earnings, is headed for its worst year since at least 1990.
Chemical tankers, about 550 feet long, carry more than 500 products including alcohols for solvents, aromatics for paints and sulfuric acid for insecticides. The U.S. is the largest exporter of organic chemicals, accounting for about 25 percent of volumes, according to Ardmore. China is the largest importer, the American Chemistry Council says.
The Asian country purchased an average of 4.61 million tons of chemicals a month between January and May, a 3.8 percent increase from the same period in 2012, according to Clarkson. Last year’s average of 4.38 million tons a month was an annual record.
The second-largest chemical tanker owner is Odfjell SE (ODF), with 96 of the vessels, according to its website. Shares of the Bergen, Norway-based company rose 13 percent this year and will gain 33 percent in 12 months, the average of five analyst estimates compiled by Bloomberg shows.
Ton-Mile Demand
Ardmore plans to order six more tankers and to sell 10 million shares for between $15 and $17 each, the company said in a stock-sale prospectus on July 22.
American exports to Asia boost fleet use because the voyages are longer than those from Persian Gulf suppliers, increasing what the industry calls ton-mile demand, or cargoes multiplied by distances. Each additional million tons shipped at the expense of Middle East exporters increases the industry’s average voyage duration by 0.25 percent, Platou estimates.
“U.S. gas will have an impact on providing cheap feedstocks,” said Rikard Vabo, an Oslo-based analyst at Fearnley Securities AS whose recommendations on shipping companies returned 11 percent in the past year. “That could be shipped to the Far East, which will generate substantial ton-miles. There’ll be continued growth in fleet utilization coming up every day.”
Source: Bloomberg

Post to be found at:
http://www.hellenicshippingnews.com/News.aspx?ElementId=3c5a667b-3ef9-4436-9620-fdf0b3353221&utm_source=newsletter&utm_medium=email&utm_campaign=daily