The cyclical nature of the tanker market continues its trend upward, a development which has Lazard & Freres & Co. stamping both
Nordic American Tankers (ASE: NAT) and Knightsbridge Tankers Ltd. (OTC- VLCCF) as shares that will “outperform.”
In a pair of separate corporate profiles released June 29, Lazard & Freres’ James L. Winchester noted that “VLCC freight rates are continuing their meteoric climb in the second quarter, averaging $46,688/ship day, up an impressive 76.3% from $26,489/ship day in the first quarter and up 127.9% from $20,488/ship day generated in the second quarter of 1999.”
In accordance with this information, Winchester has raised VLCCF’s 2000 dividend estimate to $2.32 from $2.29, a dividend which implies of yield of 11.9%.
There are a myriad of factors driving the current VLCC surge, chief among them increased oil production and a lack of qualified tonnage. Oil production was boosted by a 708,000 bpd rise in OPEC quota, agreed June 21 to help keep oil pricing in the desired $22-$28 range. In addition, there has been increased scrapping activity, as older tonnage has paid a high price due to recent disasters such as Erika. Scrapping is running an estimated 14% ahead of 1999 rates, and delivery of new tankers is expected to slow to 16.1 mdwt from 20.7 mdwt.
In exploring Nordic American Tankers, Winchester noted that average Suezmax
tanker freight rate has averaged $34,883/ship day through the second quarter, up 134 percent from $14,910/ship day generated in 2Q 1999. For NAT, Lazard Freres raised 2000 dividend estimates to $2.15 from $2.08, implying a yield of 12.7%. In its analysis, based on the OPEC increase and a five percent increase in worldwide oil demand projected by IEA, Lazard Freres believes these trends will continue to benefit demand for tankers into 2001.