Alfa Laval AB (ALFA) and Waertsilae Oyj (WRT1V), two Nordic makers of machines that remove sulfur from ship fumes, are poised to benefit as the owners of some 2,000 vessels race to comply with stricter rules for the Baltic Sea.
Finland’s Waertsilae in the last few weeks received about 20 orders for scrubbers, which are attached to engines, bringing its total to 55 on 27 ships, the company’s Environmental Solutions head Juha Kytola said in an interview. Sweden’s Alfa Laval forecasts “several new orders” in the first half after booking its inaugural scrubber order in December, Chief Executive Officer Lars Renstrom said.
While new rules to cut pollution in the Baltic and North Sea will raise shipping costs for exporters, they’re set to boost scrubber makers’ profits. Waertsilae, the biggest maker of ship engines, predicts that as many as 2,000 ships must install at least one scrubber. With the cheapest costing 1 million euros ($1.3 million), the market is worth more than 2 billion euros.
“The interest in scrubbers is high,” Renstrom of Alfa Laval, which also makes gear for cleaning wastewater and purifying ballast water and had annual sales of 29.8 billion kronor ($4.6 billion) last year, said in an interview. “We are in dialogue with several ship owners and we have in recent times made a couple of hundred offers.”
Scrubbers remove sulfur from emissions by using alkaline in the water to neutralize it. Tankers and container ships only have one engine, and therefore only require one scrubber, while ferries and cruise ships typically have between four and six engines.
While Nordic shipping companies intially had been slow to respond to the new regulation, betting that authorities would give them more time to adapt, global orders for scrubbers are now picking up quickly, according to Helsinki-based Wartsila.
“The market is now very active and we are currently in discussions of projects including all together about 100 scrubbers more,” said Kytola.
Waertsilae has risen 9.4 percent since the start of this year in Helsinki trading, valuing it at 7 billion euros. Lund, Sweden-based Alfa, with a market value of 63 billion kronor, added 11 percent. That compares to a 11 percent gain of the Stoxx Nordic 30 Index (DK5F), the region’s benchmark measure.
Rules adopted by the International Maritime Organization say the amount of sulfur used in fuel in the two European seas and waters off North America must be cut to 0.1 percent from 1 percent by Jan. 1, 2015, versus 3.5 percent elsewhere.
Nordic exporters including Svenska Cellulosa AB (SCAA), Europe’s top tissue producer, have been calling on their governments to fight the rules, claiming they will make transport costs higher than for rivals in regions where limits are lower.
While Alfa Laval said it’s focusing on as many as 2,000 ships that sail through the North Sea and Baltic Sea, the company estimates that there are about 5,000 ships globally that sail over 50 percent of their time in waters affected by the new sulfur directive.
Alfa Laval charges between 2 million euros and 3 million euros for its cleaning offering, which can handle both sea water and fresh water. At Waertsilae, a scrubber for a small ship costs between 1 million euros and 2 million euros, and for bigger vessels the price is as much as 5 million euros, according to Kytola. Rivals for Alfa Laval and Waertsilae include Singapore’s Ecospec Global Technology and Belco in the U.S.
Exporters face a 28 billion-krona increase in costs in Sweden alone, including 13 billion kronor in higher fuel bills, SCA Chief Executive Officer Jan Johansson estimates. To offset some of the additional costs, Sweden’s Finance Minister Anders Borg has started to consider tax changes to lower expenses.
Complying with the rules either requires installing a scrubber on the ship or using liquefied natural gas or buying low-sulfur fuels such as diesel rather than using the bunker fuel traditionally used to propel vessels. For companies such as Danish shipping company DFDS A/S (DFDS), which operates all but one of its routes in the affected areas, there are no options other than to comply with the rules.
“This is a huge challenge to the shipping community and it’s a huge challenge to us,” DFDS spokesman Gert Jakobsen said, adding that the company has already worked with Alfa Laval on testing a scrubber.
While powering vessels with liquefied natural gas is an alternative, there are currently no terminals providing it in the Baltic Sea.
Still, ferry operator Viking Line (VIK1V) chose liquefied natural gas as the fuel for its new passenger ferry Viking Grace, saying that potential scrubber solutions haven’t been properly tested yet. The operator now has to transport the gas by truck from Linde AG (LIN)’s terminal in Nynaeshamn, about 50 kilometers (31 miles) south of Stockholm, and then fills the ferry from a smaller boat at a terminal in Stockholm.
Ship operators may also be running out of time to comply with the rules as the installation of a scrubber takes as long as 10 months. As a result, some ship owners may decide to reduce their routes in the Baltic Sea, meaning scrubber manufacturers will have to wait longer before they can fully benefit.
“Some routes may come under pressure and it could cost capacity at sea and move traffic to land,” said DFDS’s Jakobsen. “There is always the the option of not sailing.”
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