Frontline forecasts massive tanker cancellations

A plunge in supertanker rates to their lowest in at least 11 years will likely spur owners to scrap ships and cancel orders for new ones, according to Bermuda-based tanker operator Frontline Ltd. “We will see scrapping happening soon, then we will see massive cancellations in the order book,” Singapore-based Jens Martin Jensen, temporary chief executive officer of Frontline?s management unit, said. “I don?t think this market is going to last until 2011.”

Shipyards in South Korea, China and Japan have all but two of the 146 orders for VLCCs according to Lloyd?s Register-Fairplay data. Daewoo Shipbuilding & Marine Engineering Co. has the most with 26 orders while Hyundai Heavy Industries has orders for 16.

OPEC, led by Saudi Arabia, agreed to cut production three times since September, curbing demand for tankers. The International Energy Agency, an adviser to 28 nations, on April 10 said consumption this year would drop to its lowest since 2004.

Shipyards world-wide have orders for 946 oil tankers, capable of carrying a combined 1 billion barrels of crude, according to data from London-based Drewry Shipping Consultants Ltd. Of those, 225 are VLCCs or ULCCs that normally collect Middle East and West African cargoes.

Orders for oil tankers may not be the only ones to suffer. The Baltic Dry Index, a measure of the cost of hauling coal, ore and grains, fell 92% last year. D/S Norden A/S, Europe?s largest commodities shipping line, said that the lower rates would probably curb a record construction program for those ships, half of which are being built in China.