Floating storage deal a shrewd step for Indonesian coal miner Agritrade
Energy services allow coal miner to profit as crude prices fall and demand from China ebbs
An innovative deal forged by an Indonesian coal miner will allow it to reap a windfall despite a crash in crude prices and despite China's waning appetite for imported coal.
Hong Kong-listed Agritrade Resources is dabbling in energy services with its US$22 million acquisition of an ageing supertanker and a subsequent charter to Glencore International, one of the world's largest commodity trading houses, which hired the vessel in February for six months at US$6.4 million to store crude, with an option to do it again for another six months.
The deal, hailed as smart and well-timed by many in the oil trading and shipping market, allows the coal miner to extend the economic life of Sea Equatorial, a very large crude carrier (VLCC) built in 1997 with a capacity to carry two million barrels of crude.
Tankers older than 15 years normally struggle to find cargo due to traders and charterers' concerns over the performance of old vessels. They are often sold for scrap in Bangladesh or India.
"We see plenty opportunities in providing floating storage with traders. With contango in play, traders actively are buying oil and the next thing they need is a storage facility," Agritrade chief executive Ng Xinwei said in an interview.
Oil has been in contango because the futures price is higher than the spot price, forcing many in the trade to scramble to find storage for the commodity.