Frontline Ltd, the world's largest independent oil shipper, swung to a second-quarter loss and saw its stock fall to a nine-year low on Friday amid a global tanker glut it said could last through 2012. The Oslo-listed company said it lost $1 million before interest and taxes, down from a profit before interest and tax (EBIT) of $118 million in the same quarter a year ago, and missing a Reuters poll forecast for a $4 million profit.
"It's a weak report, and the numbers next quarter are likely to be even redder," Handelsbanken shipping analyst Christian Dyvik said. "You have to look into 2013 at the earliest for a possible turnaround." Frontline shares fell 3.5 percent to 34.25 crowns at 0941 GMT, almost 80 percent below where they opened the year, while the Oslo bourse index was 0.6 percent lower.
Earlier the firm said it would pull some ships from service as day rates dip below its breakeven level and new global tanker construction - initiated with gusto as the 2008-2009 finance crisis began easing - outpaces demand for oil transport. On Friday the firm said it "expects the weak trend in the second-quarter results to be extended into the third quarter".
It said a rise in global crude demand was unlikely to absorb excess ship capacity through 2012, and that corporate mergers and fleet sales were needed. "There is more talk in the market about consolidation," CEO Jens Martin Jensen told analysts. "Something has to happen, and someone has to take the initiative." He told Reuters that Frontline was poised to act. "Ships have become cheaper and companies have become cheaper, so there are various opportunities now," he said.
The company said its average time-charter breakeven rates for the rest of 2011 would be about $29,800 a day for very large crude carriers (VLCCs) and $24,800 for Suezmax tankers. In the second quarter its average rates were below that, it said. "As I see it this has to be the bottom," Jensen said of rates. "I can't understand anything else." Asked what it would take to prompt an upswing, he said: "First and foremost it is probably to hold back some tonnage."
He said some Frontline vessels had begun "ultra-slow steaming" - or reducing speed to remove their capacity from the market. Three months ago Frontline Vice President Tor Olav Troeim said the tanker market's "black plague" could last five years. Handelsbanken's Dyvik said second-quarter construction delays for several new Frontline vessels amounted to a reprieve for the company by deferring purchase payments.
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