The chemical-tanker fleet is poised to contract for the first time in at least 17 years, boosting earnings for Stolt-Nielsen Ltd. just when Dow Chemical Co. and DuPont Co. are cutting jobs and closing plants.
The combined capacity of the fleet will drop 1 percent next year, according to ABG Sundal Collier Holding ASA, an investment bank in Oslo whose data starts in 1996. Shares of Stolt-Nielsen, which operates the most chemical tankers, will rise 33 percent in the next 12 months and those of Bergen, Norway-based Odfjell SE will almost double, based on the averages of estimates from 10 analysts compiled by Bloomberg.
While the International Monetary Fund predicts growth will accelerate in 2013, Dow Chemical, the largest U.S. producer, said business conditions are the worst since the recession as it cut 2,400 jobs. DuPont said it is eliminating 1,500 positions. Shipping analysts are bullish because they say cargoes track global growth and the tanker industry’s shrinking capacity contrasts with a glut in most of the rest of the merchant fleet hauling everything from coal to oil.
“The Dow headline gave me chills, but when you look at the market, there’s still strong underlying industrial demand for chemicals,” said Ole Stenhagen, an Oslo-based analyst at SEB Enskilda whose recommendations on shipping equities returned 32 percent in the past three years. Chemical-tanker owners refrained from ordering too many ships when most of the rest of the industry were “acting out their death wish,” he said.
Rates for chemical tankers across 23 trade routes averaged $70.65 a metric ton since the start of January, 4.4 percent more than last year’s record $67.70, according to London-based Clarkson Plc, the world’s largest shipbroker. That contrasts with a 55 percent slump in returns for the largest crude-oil carriers and a 40 percent decline for ships hauling coal, iron ore and grain.
Stolt-Nielsen, which operates 154 tankers from London, will report a 37 percent gain in net income to $99.8 million for next year, according to the mean of eight analyst estimates compiled by Bloomberg. Its shares dropped 13 percent to 104.50 kroner in Oslo this year and will reach 138.80 kroner in 12 months, the average of five predictions shows.
Odfjell, operating 99 vessels, will narrow its net loss to $20.9 million for 2013 from $81.8 million this year, the mean of six estimates shows. Shares of the company declined 48 percent to 18.80 kroner this year and are projected to reach 36.98 kroner in 12 months.
Chemical tankers, 550-foot-long vessels, carry more than 500 products including alcohols for solvents, aromatics for paints and sulfuric acid for insecticides. Some ships in the fleet of about 4,000 tankers also carry refined fuels such as gasoline and diesel. Other owners include Oslo-based Eitzen Chemical ASA and St. Helier, Jersey-based Triton, an investment company managing about $5.1 billion of assets.
Global sales of basic chemicals reached about $2.2 trillion in 2011 and demand is tied to world economic growth, according to Bloomberg Industries analysts led by Jason Miner in Skillman, New Jersey. The IMF expects the world economy to expand 3.6 percent in 2013, from 3.3 percent this year.
Actual growth may turn out to be lower than that because the Washington-based group already cut its forecast twice since July, most recently by 0.3 percentage point on Oct. 9. The 17-nation euro area will contract through the first half of next year, the average of 25 economist estimates compiled by Bloomberg shows. China, the engine of world growth, has slowed for seven consecutive quarters.
Cargo volumes weakened across all trade routes in the third quarter, Niels Stolt-Nielsen, chief executive officer of the company, told analysts on a conference call Oct. 4. He still forecast rising freight rates because fewer new vessels are joining the fleet. Jens Gruner-Hegge, a spokesman for Stolt-Nielsen, and Margrethe Gudbrandsen, a spokeswoman for Odfjell, declined to comment.
Ship owners are also contending with rising fuel costs, their single biggest operating expense. The price of so-called bunkers jumped 11 percent to $629.86 a metric ton since the end of June and is heading for a record annual average, according to data compiled by Bloomberg from 25 ports.
Returns from hauling chemicals are beating those from carrying crude oil and coal because owners limited orders for new vessels before the global recession. Orders for new chemical ships peaked at 25 percent of existing capacity four years ago, compared with 48 percent for oil tankers and 74 percent for dry-bulk carriers, according to data from IHS Inc., an Englewood, Colorado-based research company.
That reflects the cost of the ships and the fact the industry is controlled by fewer owners than other parts of the merchant fleet, said Erik Folkeson, an analyst at Swedbank First Securities in Oslo. Building a new chemical tanker costs about $660,000 a ton, compared with $260,000 a ton for a Capesize dry-bulk carrier, Clarkson data show. Stolt-Nielsen and Odfjell control a combined 29 percent of capacity, according to Odfjell’s annual report.
The seaborne trade is being boosted by where the chemicals are being produced and consumed. The U.S. exports about $129 billion of chemicals a year, or almost 11 percent of the global market, according to Cefic, a European industry group based in Brussels. Germany is the second-largest shipper, with sales of about $128 billion. China buys $149 billion of cargoes a year, or almost 12 percent of the worldwide total.
U.S. producers have the advantage because natural gas, one of the main raw materials for producing chemicals, averaged 34 percent less in New York trading this year. Costs slumped as production was boosted by the extraction of hydrocarbons from shale formations. Naphtha, an alternative feedstock for the industry, averaged about 0.7 percent more in Europe this year.
“If you look at how dismal it is for oil tankers, dry bulk and containers, the chemical-tanker market is one of the few segments where you’re finished with the order book” for new ships, said Petter Narvestad, an analyst at Fondsfinans ASA in Oslo whose recommendations returned 12 percent in the past year. “Yes, the world economy is slow, but it’s going to come back at some point and then earnings are going to come up.”