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Trafigura expands tanker exposure, backs 32-ship order

01 Jun 2017 21:03 (+01:00 GMT)
Trafigura expands tanker exposure, backs 32-ship order

New York, 1 June (Argus) — Energy trader Trafigura has backed an order at Korean and Chinese shipyards of up to 32 tankers that the firm plans to place into its growing wet freight trading division, Trafigura said today.

Low newbuilding prices and the possibility of widespread vessel scrapping spurred by looming shipping regulation are factors that likely weighed into the energy trader's decision, a bank shipping analyst told Argus.

The order, which is potentially worth above $1.35bn, is being placed by a close Asian financial partner of Trafigura, and the vessels will be leased to Trafigura upon delivery with options to purchase, the global trading firm said.

Today's agreement includes a firm order of 22 crude and product tankers with options for ten more, consisting of Medium Range (MR) ships, Long Range (LR2) vessels, and Suezmax tankers. Korea's Hyundai Heavy Industries (HHI) Group will build some of the tankers and China's privately owned New Times Shipbuilding will construct the others. The ships will be delivered from the end of 2018 through 2019, with the majority schedule to hit the water in the first quarter of 2019, said Trafigura.

The order comes at a time of depressed newbuilding prices, but also amid concerns that elevated scrapping levels due to the implementation of International Maritime Organization (IMO) regulations will lead to a shortage of suitable tankers, the bank analyst told Argus.

Multiple years of weak demand for new ships have promoted higher competition among shipyards to secure orders, resulting in lower building costs. At the market's peak in 2008, a VLCC order at a shipyard costed $160mn, according to data from shipbroker Gibson. The figure currently sits at about $80mn, the lowest level since 2004, according to the shipbroker.

Trafigura, which functions both as a charterer and as a vessel owner in the shipping market, may have opted to enlarge its fleet to hedge against higher freight costs, the analyst said.

The share of wet cargoes, which include oil and chemicals, that Trafigura transports on its own vessels has fallen this year. Around 85pc of Trafigura-controlled wet cargoes will have been placed on third-party tonnage this year, up from 80pc in the period 2014-2016, Trafigura said.

Trading houses, such as Trafigura, are concerned that the combination of the IMO's Ballast Water Management (BWM), set to enter into force in September of this year, and the organization's sulphur emissions cap, to come into effect in 2020, may spur widespread scrapping of older tonnage, as the cost of compliance may not be economic for owners of ships nearing the end of their standard 20-year life span, the analyst said.

Trafigura's wet freight trading division, which operates as one of the firm's profit centers, recorded around 3,000 tanker fixtures last year, up from 1,970 in 2015, Trafigura said.