Shipowners may scrap plans to convert supertankers into dry-bulk carriers after a record plunge in the returns from transporting commodities such as iron ore and coal, investment bank Fearnley Fonds ASA said. Rental rates for commodity carriers in November were as much as $171,000 a day more than those for very large crude carriers, or VLCCs, according to Bloomberg calculations. Since then, the cost of hauling iron ore and coal has more than halved. It costs $90 million to $100 million to buy a VLCC and convert it into a commodity carrier and 35 such projects had been planned for this year, Fearnley Fonds shipping analyst Rikard Vabo said by telephone from Oslo today. There is now ''uncertainty'' about those plans, he said.
The cost of shipping commodities has slumped after Cia. Vale do Rio Doce, the world's biggest producer of iron ore, and Rio Tinto Group, the second-biggest exporter, said supplies of the raw material were disrupted. Costs have also declined on signs the U.S. may be slipping into a recession and China's government is slowing the country's record economic expansion.
Converted vessels will also have to compete with record numbers of new dry-bulk ships being built in Asia, Vabo said. That building program is the biggest ever, according to Philip Rogers, head of research at shipbroker Galbraith's Ltd. Frontline Ltd., the oil carrier business led by Norwegian billionaire John Fredriksen, in November told investors it expected the conversion program to buoy VLCC hire rates.
The collapse in the single-voyage, or spot, commodity shipping market has been mirrored by declines in contracts called forward freight agreements, or FFAs. They're contracts that indicate what traders anticipate will be the average 2008 price of hauling coal, iron ore and grains.
In October, FFAs indicated it would cost an average of about $144,000 a day to haul coal and iron ore in 2008, compared with $36,000 a day for the largest crude-oil cargoes. That compares with $89,543 a day and $52,717 a day respectively for the same contracts now, according to prices from Imarex NOS ASA on Bloomberg.
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