Refined Products Tanker Purchases Booming (FRO, IVZ, STNG, TORMD)

Paul Ausick

Some of the richest men and largest shipping companies are stocking up on medium-range tankers to carry refined products from the new refining hubs in India and Asia to markets in Japan, China, and the US. Regardless of the fact that the US is now a net exporter of gasoline and other refined products, the big money is betting on Indian and Asia refineries to grow capacity during the next few years as refining is cut back in the US and Europe.

The bankruptcy of Europe’s largest refiner, Swiss-based Petroplus, could be just the first in a string of refinery closures in the developed world. That’s why Frontline Ltd. (NYSE: FRO) and Wilbur Ross of Ivesco plc (NYSE: IVZ) fame have been ordering the medium-range tankers. According to Bloomberg News, Frontline’s chief, John Fredriksen, has ordered 10 new tankers and Ross bought into a Connecticut shipping company called Diamond S Shipping last year and, with partners, promptly ordered 30 new tankers to carry refined products.

Shipping companies aren’t doing as well. Scorpio Tankers Inc. (NYSE: STNG) lost nearly $83 million in 2011 and Denmark’s Torm A/S (NASDAQ: TORMD) lost $453 million. Forecasts for this year are smaller losses, but the glut of tankers is still going to depress day rates.

But that’s today’s news. Tomorrow’s news is that refining is shifting to the East and the only way to get the products to market is by tanker.