Scorpio Tankers Exec: Asia Rates Above $70,000 A Day 'Never Been Seen Before'
Chief Commercial Officer Lars Dencker Nielsen says Asian and U.S. Gulf product tanker rates are unlike anything in his career, as the dividend rises 67%.
Scorpio Tankers' chief commercial officer, Lars Dencker Nielsen, said on the company's third-quarter earnings call Wednesday that he had never seen an Asian product tanker market this strong, with long-haul Asia voyages trading between $70,000 and $80,000 a day. Scorpio, which moves refined petroleum products by sea, also raised its quarterly dividend to 75 cents a share from 45 cents.
Rates nobody has seen before
Nielsen said U.S. Gulf rates were trading north of $80,000 a day as of October 28, while long-haul Asia round voyages were at $70,000 to $80,000. "This has never been seen before," he said, calling it "the first time in my career that I've ever seen a market in Asia being this strong."
President Robert Bugbee walked through the climb month by month. Medium-range tankers earned about $29,000 a day in July, $53,000 in October and nearly $70,000 for the first 37% of November. Large LR2 tankers went from $55,000 in July to $168,000 in October and about $215,000 a day so far in November.
For the fourth quarter to date, CEO Emanuele Lauro said Scorpio has booked LR2s at about $181,000 a day, MRs at $56,000 and Handymax vessels at $40,000. Bugbee said the seasonally strongest stretch usually runs from a week before Thanksgiving to two weeks after.
Why it is happening
Head of Corporate Development and Investor Relations James Doyle said Middle East crude exports have more than doubled since May, from 8 million barrels a day to nearly 17 million, lifting global refinery runs by 4 million barrels a day. Seaborne product exports hit 20.6 million barrels a day in September, 14% above May lows. Bugbee said more oil began moving through the Straits of Hormuz four or five weeks ago.
Nielsen said about 70% of LR2s were trading dirty (carrying crude) by the end of September, and that clean LR2 rates are now "astronomical." Asked by a Deutsche Bank analyst about Russian cargoes reaching the U.S., he said, "It's going to be a sideshow. It's a flash in the pan."
Dividend up 67%, cash above $2 billion
Scorpio reported third-quarter adjusted EBITDA of $172 million and adjusted net income of $127 million, including a $153 million gain on the sale of five vessels. Its debt stands at $655 million against more than $2 billion of cash, and its cash break-even is below $11,000 a day per vessel. Chief Financial Officer Chris Avella said net cash is $1.4 billion, or $27 per share.
Bugbee said management sees no urgency to add time charter coverage, which fixes a ship's rate for a set period, ahead of winter. Avella said the company can pay for its 17 newbuilding commitments and VLCC joint-venture equity, about $1.3 billion in all, without new debt. The convertible notes carry a conversion price of $99; Avella said the company cannot redeem them now and would only buy them in the open market.
Scorpio, with a fleet of 90 wholly owned product tankers as of March 19, now heads into the seasonally strongest weeks around Thanksgiving with Bugbee's verdict that "the party hasn't yet begun."
Sources
- Scorpio Tankers GAAP EPS of $4.60 beats by $2.48, net revenue of $249.04M beats by $6.22M (STNG:NYSE) | Seeking Alpha — seekingalpha.com
- Wall Street splits over tanker boom - Splash247 — splash247.com
- Scorpio Tankers Inc. Announces Financial Results for the — globenewswire.com
