Frontline has warned owners rushing to order VLCCs that the eventual cost of the newbuildings will be much higher than the shipyard price.
Chief executive Lars Barstad told an earnings call that due to the cost of capital and long lead times until handover, the delivered price is “actually significantly higher than the kind of list price that you pay”.
“And I also noted that one of our competitors ordered quite a few vessels recently at fairly high numbers historically,” he said.
US-listed owner DHT Holdings this week contracted four firm VLCCs at Hanwha Ocean and Hyundai Samho Heavy Industries in South Korea for an average of $128.5m each.
There are also options for four more big tankers.
“I think the dynamics in shipping, and this is probably what makes shipping quite fun, are that when one actor gets his feet wet, then suddenly every other actor is competing to get their feet wet as well,” Barstad said.
“And I think the newbuilding market is a little bit muted for the bigger sizes for a while, and it’s almost like who’s going to go first,” he added.
Barstad said the market needs to establish new price levels for South Korean and Chinese-built tankers.
He noted “quite a lot” of orders placed at what appear to be “last-done” levels of late.
Barstad said Chinese yards are charging between $115m and $120m for a new VLCC, with Hanwha Ocean winning its first such order for a number of years and setting the benchmark at between $128m and $130m in South Korea.
Frontline spent $2.35bn at the end of last year on buying 24 modern VLCCs from Euronav, so has not been focusing on newbuildings.
“So we’re obviously watching this, and a little bit from the sidelines. We’ve been a little bit busy the last quarter and a half, so although we monitor this, we haven’t taken an active role yet,” Barstad said.
