The absolutely sizzling dry bulk market and IMO 13 G regs have made the conversion of older single hull VLCC's into VLOC's a commonplace. Nearly 30 vessels are up for conversion as per the latest reports from the industry. China's growth and in turn it's appetite for commodoties has led to this fire in the dry bulk market, especially the iron ore demand. This has further led the big producers from Brazil [CVRD] and Australia [Rio, BHP] to concentrate on larger vessels to maximize economies of scale and decrease delivery cost of bulk product sold on CIF basis to China.
Shipyards in China are turning single hull VLCC's into VLOC's instead of refurbishing them as double-hull vessels. COSCO alone is looking at converting 10 vessels in the next 2 years [Li Jian Xiong, Cosco]. Mitsui OSK Lines is also considering converting some of their older single hull VLCC's. Shipyard capacity seems to be the deciding factor as to how many will eventually see new life a VLOC's in the coming years [http://www.worldmaritmeconsultants.com]
The economics of converting a VLCC into a VLOC's seems to make perfect sense at the present moment based on the following calculation [McQuilling Services];
Conversion Cost = 25 million USD
TCT Tubarao/Beliun = 60,700 USD/day [Average 2006 earnings based on 165k mt on this route]
Share of project Financed = 65% @ 8% per annum
The conversion cost based on the above assumptions would be paid of in 17 months [8 round trips] or at minimum monthly payments after 5 years of trading with a net cash flow after financing and operating costs of USD 40,700/day [http://www.mcqservices.com/]
These converted vessels are expected to trade for roughly 10 years after conversion, enough to more than recoup their cost of conversion and provide a lucrative alternative for dry bulk owners to sending their older VLCC's for scrap.
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