Mumbai: In a decision that underscores the changing strategy of shipowners, Mercator Lines Ltd will convert its very large crude carrier into a very large ore carrier to cash in on the boom in the dry bulk freight market.
The converted carrier will then be sold by Mercator to its Singapore subsidiary, Mercator Lines (Singapore) Pte. Ltd, for $85 million (Rs334.05 crore), according to the preliminary prospectus filed by the Mumbai-based firm for the initial public offering of its Singapore subsidiary.
Mercator will thus become the first Indian shipping company to list in Singapore.
A file photo of a tanker at sea outside Mumbai. Globally, 30-40 very large crude carriers and suezmax tankers are being converted into dry-bulk cargo ships. A very large crude carrier fetches a day rate of up to $25,000 for its owner in the spot market against $200,000 a very large ore carrier can earn
The 1993-built crude carrier named Premputli can carry 287,875 tonnes of crude oil. After conversion, expected by late 2008, it would be able to carry 270,000 tonnes of iron ore and can be operated for a minimum period of 10 years.
As per rules framed by the global maritime regulator, the International Maritime Organization (IMO), all single-hull crude carriers will have to be phased out by 2010 unless they are converted into double-hull ships or into ships that can carry dry bulk cargoes such as coal, iron ore and steel. A dry bulk ship can be operated for about 30 years.
India’s second biggest private shipping firm by fleet size, Mercator had purchased the crude carrier in May 2004 from Canadian shipowner Teekay Corp. for $44.8 million.
Mercator has already found business for its soon-to-be converted carrier. It will be used to ship iron ore from Brazil to China for Zhuhai Yueyufeng Iron and Steel Co. for an initial period of five years, which can be extended by another two-and-a-half years, at the option of the Chinese firm. The average cost of renting a ship to carry iron ore from Brazil to China has nearly tripled to about $180,000 a day from $65,000 a year ago, driven mainly by a global shortage of ships in the face of a surge in global trade.
Globally, about 30-40 very large crude carriers and suezmax tankers (those that can transit through the Suez Canal carrying crude oil) are being converted into ships that can carry dry bulk cargoes to comply with the IMO stipulation on single-hull ships. And the booming dry bulk freight market has come in handy for shipowners to convert their ships into dry bulk carriers and use them for a few more years rather than send them to the scrap-yard. In comparison, the freight rates for shipping crude oil are down. A very large crude carrier currently fetches a day rate of $20,000-25,000 for its owner in the spot market. In comparison, a very large ore carrier can earn as much as $200,000 a day.