Bermuda-based Knightsbridge Tankers (NASDAQ: VLCCF) reported their Q3 financials today and gave us an overview of the tanker and dry bulk markets. With significantly lower day rates in the VLCC and Capesize sectors and net losses from the sale of the VLCC Hampstead and an impairment loss of $41.6 million relating to the VLCC Titan Venus ($14.7 million), the VLCC Kensington ($13.5 million) and the VLCC Mayfair ($13.4 million), it was a tough quarter.
At the opening bell of the NASDAQ today, VLCCF stock was down over 3 percent.
The following is a market overview as reported by Knightsbridge today:
THE TANKER MARKET
The market rate for a VLCC trading on a standard ‘TD3’ voyage between the Arabian Gulf and Japan in the third quarter of 2012 was WS 36, representing a decrease of approximately WS 19 point from the second quarter of 2012 and a decrease of approximately WS 22 points from the third quarter of 2011. Present market indications are approximately $5,500 per day in the fourth quarter of 2012.
Bunkers at Fujairah averaged $650/mt in the third quarter of 2012 compared to $662/mt in the second quarter of 2012. Bunker prices varied between a low of $590/mt on July 2 and a high of $697/mt on September 4.
The International Energy Agency’s (“IEA”) October 2012 report stated an OPEC oil production, including Iraq, of 31.4 million barrels per day (mb/d) in the third quarter. This was unchanged compared to the second quarter of 2012.
The IEA estimates that world oil demand averaged 90.1 mb/d in the third quarter of 2012, which is an increase of 1.3mb/d compared to previous quarter and the IEA estimates that world oil demand will average approximately 89.7 mb/d in 2012, representing an increase of 0.9 percent or 0.8 mb/d from 2011. 2013 demand is expected to be 90.5 mb/d.
The VLCC fleet totalled 617 vessels at the end of the third quarter of 2012, up from 610 vessels at the end of the previous quarter. 10 VLCCs were delivered during the quarter, three were removed. The order book counted 91 vessels at the end of the third quarter, down from 95 orders from the previous quarter. The current order book represents approximately 15 percent of the VLCC fleet. According to Fearnleys, the single hull fleet is 22 vessels, one less than last quarter.
THE DRY BULK MARKET
The global economy is still under pressure lead by continuous weak data from the Euro Area. IMF has since their last quarterly report lowered its growth forecast for 2012 and 2013 with 0.2 and 0.3 percent and is expecting a growth of 3.3 and 3.6 percent respectively.
Chinese growth, the most important for the dry bulk industry, is unofficially reported to have increased by 7.4 percent which is in line with expectations. Preliminary data for U.S. growth is showing an increase of two percent, slightly above expectations.
In the previous quarter’s dry bulk section we referred to the Chinese Authorities’ proactive approach and potential new stimulus package on the back of lower inflation. In September 2012 a package of RMB 1 trillion was announced, equivalent to USD 150 billion. The stimulus packages will focus on infrastructure such as highways, railways and waterways and should have a positive effect on steel demand. The steel sector is accounting for almost 50 percent of the dry bulk trade. This had an immediate positive effect on international iron ore prices which had been under pressure until the announcement.
The demand for dry bulk transportation declined by 0.7 percent during third quarter compared to the second quarter of 2012, however it increased by 5.4 percent compared to same quarter in 2011.
China imported 183 million tons of iron ore during the third quarter of 2012 or 730 million tons on an annualized basis against 680 million tons of iron ore imported during 2011.
Increase of coal imports to China is slower compared to the two previous years and the country will most likely end up at around 215 million tons in 2012 which represents a 5 percent growth. The main reason for lower coal imports is higher energy production from hydro power.
The utilization of the dry bulk fleet is till low due to continuous deliveries of new buildings to the market. Approximately 15 million DWT was delivered during third quarter which represents an increase of two percent compared to deliveries in the previous quarter and 13 percent compared to the same quarter in 2011.
Scrapping so far in 2012 has already passed the record high volume of 2011 and it is expected that total scrapping could reach 32 million dwt. for the full year. 77 Capesize vessels have been reported sold for scrap so far this year which is an encouraging number and average scrap age is on its way down. In spite of the high number of dry bulk vessels being sold for demolition, the scrap prices have been quite stable. New and modern scrap yard capacity will be available in China by the end of this year.
The total order book of 125 million dwt. represents approximately 18 percent of the existing dry bulk fleet. New orders being placed so far this year are almost non existing. The official order book for 2014 stands at 20 million dwt. against an estimated total delivery of more than 115 million dwt. new capacity this year. The input is based on an average from four independent analysts.
In September 2012, Knightsbridge announced that the sale of the VLCC Hampstead was not completed due to the buyer’s default. The sale was, therefore, cancelled and the company retained the deposit received in the amount of $2.4 million. The VLCC Hampstead was then remarketed for sale and was sold with delivery to the new buyer on September 20. This sale resulted in a loss of $15.1 million. These amounts comprise the net loss on sale of a vessel of $12.7 million, which was recorded in the third quarter.
In September 2012, Knightsbridge also announced that the VLCC Titan Venus had been sold to an unrelated third party and was delivered to its new owners on October 9. An impairment loss was recorded on this vessel of $14.7 million in the third quarter.
The long term charter contract for the VLCC Mayfair was terminated by Knightsbridge in October 2012. The bare boat contract was initially for five years ending July 2015 however, the charterer failed to adhere to the contract and the vessel was redelivered to the company. Knightsbridge has a guarantee from the parent company of the charterer and damage claims are being sought for unpaid hire. Alternative employment for the vessel is currently being sought.
CORPORATE AND OUTLOOK
Knightsbridge’s fleet consists of four Capesize vessels and two VLCCs. The sale of the two VLCCs is part of their intention to renew and eventually grow the fleet. This may assist them in reacting to potential acquisition opportunities. In addition, investment opportunities in the dry bulk segment are currently being considered.
Knightsbridge’s Board has approved a dividend of $0.175 per share. 24,437,000 ordinary shares were outstanding as of September 30, 2012, and the weighted average number of shares outstanding for the quarter was 24,437,000.
- Knightsbridge reports EBITDA of $4.4 million and EBITDA per share of $0.18 for the third quarter of 2012.
- Knightsbridge reports total cash at September 30, 2012 of $82.5 million.
- Knightsbridge reports a net loss of $57.0 million and a loss per share of $2.33 for the third quarter of 2012.
- The net loss of $57.0 million includes a net loss on the sale of a vessel of $12.7 million and an impairment loss on vessels of $41.6 million.
- Knightsbridge announces a cash dividend of $0.175 per share for the third quarter of 2012.
- Knightsbridge reports a net loss of $53.2 million and a loss per share of $2.19 for the nine months ended September 30, 2012.
- The VLCC Hampstead was sold and delivered on September 20.
- The VLCC Titan Venus was sold and delivered on October 9.
An in-depth report of Knightsbridge’s financial details can be found by clicking here: http://hugin.info/132879/R/1655840/535177.pdf