THE AFRAMAX SECTOR: Where is this Bull Market Headed?

Extracted from a report prepared by Jerry Lichtblau of Mallory, Jones, Lynch, Flynn & Assoc., Inc.

The aframax sector has enjoyed a significant run-up in rates over the last few years and, in the tradition of drawing a straight-line, is expected to continue indefinitely by some. There are those who recall the levels of late 1991 – when a five year timecharter on the Sanko Quality was concluded at an average rate of slightly below $25,000/d for the period and a seven year charter plus options on the Stena Concert was also concluded – and the 1st half of 1992 and feel that market can be revisited and this time maintained.

We do not share this opinion. Commencing currently through the 1999/2000 period we expect a softening in the earnings for this fleet. This is either in contrast to other crude carrying markets or a steeper drop depending on your perspective.

In the markets reviewed in this report, the increase from 1994-1997 has ranged from just under 40% to 50% for the most part. In one trade the increase in earnings has topped 70%; a 40-50% increase implies a 12 -14% annual growth rate in revenues for owners.

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