Tradewinds: Converts Cast Dark Cloud

23 Jan 2015: “In response to concerns about these rumours Poten & Partners issued a report in which it argued that this does not appear to be the beginning of a broader trend. ‘We don’t expect that this development will become so widespread that it will pose an immediate threat to the health of the tanker market,’ the firm told clients Friday. “While Poten believes more capesize orders will be converted in the coming months it pointed out that there are a number of obstacles to overcome. The tanker broker noted not all shipyards are equipped to build both bulkers and tankers or lack the designs that would be needed to fulfil the new contract. It also argued that many would oppose the proposition unless they were approached by prominent owners with deep pockets and numerous newbuildings. “’The shipbuilder will want to ensure that these conversions do not significantly interrupt planned construction and procurement,’ Poten added. “’Shipyards are also keen to maintain their profit margins when changing from one vessel-type to the other.’ The tanker broker pointed out that there were approximately 336 capesize bulkers on order at Asian shipyards as of 1 January 2015. “Of these Poten claims nearly 20% are already under construction, which means it’s probably too late to convert these units into another type of tonnage. ‘Even if construction has not yet started, a switch to another vessel type is only feasible if the same yard has an existing design and a proven track record of building such vessels,’ it added. Of the 38 yards that landed these cape orders Poten claims only 11 are capable of building tankers of a similar size, which eliminates another 104 units from the total number of candidates. “’If one assumes, which we believe to be reasonable, that the owners that will most aggressively push for conversions are the ones with experience in both dry bulk and tanker markets, the field is whittled down even further,” it continued. Based on this assessment Poten believes only 50 of the capes on order in Asia are realistic candidates for conversion and noted a number of these contracts are already subject to what it described as “active negotiations’. “As we reported it is widely believed that affiliates of Norwegian shipping magnate John Fredriksen, Cargill and a few other operators have approached shipyards about conversion. “In addition to the obstacles outlined by Poten industry observers note cost is prohibitive as well, particularly to those that are looking to swap a cape for a suezmax. “While the conversion craze is, in part, a response to renewed optimism about the future of the tanker market, sources note the trend also serves as further evidence that turbulence in the dry-bulk market is unlikely to end anytime soon.”