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A Look at Frontline’s Performance in a Weak Market

PART:
1 2 3 4 5
A Look at Frontline’s Performance in a Weak Market PART 1 OF 5

How Frontline Views the Crude Tanker Industry’s Outlook

Frontline’s outlook

Let’s take a look at what Frontline (FRO) said about the crude tanker industry in its 2Q17 conference call. This outlook should help us assess the future of Frontline and its peers— Teekay Tankers (TNK), Tsakos Energy Navigation (TNP), DHT Holdings (DHT), Euronav (EURN), Navios Maritime Midstream Partners (NAP), and Nordic American Tankers (NAT).

How Frontline Views the Crude Tanker Industry’s Outlook

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Summary of Frontline’s market outlook

Some of the important points on the market outlook given by Frontline are:

  • There is growth in tonne-mile demand. This suggests that the current crude tanker market is not suffering from weak demand but rather, it’s suffering from excess supply growth.
  • Frontline (FRO) expects the current market weakness to continue in the short term. It believes the market could begin improving in 2018 as the pace of newbuild deliveries decelerates and scrapping activity increases.
  • Newbuilding deliveries have accelerated since 2016, and 47 VLCCs and 26 Suezmaxes entered the global fleet. Around 35 vessels are expected to be delivered in each segment in 2017.
  • In the global fleet, there are ~110 VLCCs built in 2000 or earlier. This is almost equal to the current VLCC orderbook. The older vessels will eventually exit the global fleet. In the near term, scrapping activity is expected to increase. In 2017, only seven VLCCs and eight Suezmaxes have been scrapped.
  • Demand for crude oil remains robust. Crude oil imports, especially in India and China, continue to grow.

Frontline’s statement

Frontline’s CEO, Robert Hivde Macleod, stated, “The market has been decidedly weak since the start of the second quarter of 2017, which is primarily the result of the increase in the size of the global crude oil tanker fleet. While the weak market naturally affects our earnings in the short term, the company’s strategy is not altered.”

In the next part of this series, we’ll see how Frontline’s earnings are affected by the weak tanker market.

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