Shipping: Tankers set for smooth sailing as demand rises.
The uptrend in spot freight rates in the key tanker segment over the past few weeks is visible. And the trend has been attributed by Indian shipping companies to long distances for which ships in this segment are hired. In addition, a recent report by a foreign broking house also pointed out to an increasing movement of crude oil from West Asia to various countries in South-East Asia and that"s largely due to the strong economic growth in the region. For instance, according to various estimates, nearly 12.8 million barrels of crude oil (mbpd) were transported daily from West Asia and headed eastward in mid-February "10 compared to 12.6 mbpd in January "10.
As a result, in the tanker segment like VLCC segment (very large crude carriers used to transport crude oil), spot freight rates are currently at $30,000 per day levels compared to the average spot freight rate of $25,908 per day in February "10.
In other segments like Suezmax, freight rates are currently at $20,540 per day levels compared to the average spot freight rate of $14,495 per day in February "10. Oil cartel OPEC, in its latest monthly oil market report, highlighted that the world oil demand growth is forecast to increase 1.1% Y-o-Y to average 85.2 million barrels per day in CY10.
However, it pointed out to stronger demand conditions in China and other countries in Asia, coupled with Latin America. For Indian player like GE Shipping, its fleet capacity consisted of 38 vessels with a total capacity of nearly 2.84 million DWT (dead weight tonnes) at the end of January "10, and it had utilised a large majority for the tanker segment. In the case of Shipping Corporation of India, the largest Indian player, its owned capacity was 5.35 million DWT as on August "09, and it had also utilised a majority of this capacity for the tanker segment.
In the dry bulk segment, the Baltic Dry Index is currently at 3,120 levels compared to the average of 2,678 for this index in February "10. Analysts point out to continued strong demand from the Chinese metal industry to transport key inputs like coal and iron ore.
GE Shipping at Rs 287 at close of trade on Thursday is valued at nearly 8 times on a trailing four-quarter basis and looks reasonable. Meanwhile, SCI trades at 14.5 times and is expensive.