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Tanker Owners Seen Needing to Scrap Newer Ships for Rebound

Oil-tanker owners must demolish newer vessels in order for shipping rates to recover by 2014 or 2015, according to Braemar Seascope Ltd., a London-based shipbroker.

The Baltic Dirty Tanker Index, a measure of crude-shipping costs, may reach 1,200 by 2014 or 2015 compared with 680 points now, provided owners scrap 15-year-old vessels, Mark Williams, research director at Braemar, said today at the Seatrade Tanker Industry Conference in Copenhagen. The gauge was last at 1,200 in January 2010, according to the Baltic Exchange, which publishes the price assessment.

“It seems dramatic, but it’s already happening,” Williams said of the demolitions, adding that the vessels are built to last 25 years.

With world oil consumption growing 1 or 2 percent a year, the tanker industry needs to accelerate scrapping to end its slump after owners ordered too many vessels before the global recession, according to Williams. Earnings for tankers hauling refined products won’t recover next year either, he said.

More tankers could join the fleet as China may build 50 to 75 very large crude carriers by the end of the decade to meet its own expanding oil demand, Williams said. The world’s largest energy consumer prefers to use domestically owned vessels, he said.

“They should be buying secondhand ships cheap, but there’s probably going to be a policy initiative” to support domestic shipbuilding, he said.

Braemar Seascope is a unit of Braemar Shipping Services Plc.

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