Euronav sees positive signals ahead

Euronav has reported a net gain of $19.5 mill for the first quarter of this year, compared with a net loss of $39.1 mill for 1Q18.

Proportionate EBITDA for 1Q19 was $132.9 mill, compared with $30.7 mill in 1Q18.

Freight rates were described as resilience, despite OPEC cuts and new tonnage entering the fleet. There were also a number of positive signals emanating from the current large crude tanker market, the company said.

New CEO, Hugo De Stoop, is to have his appointment formally recorded at the 9th May AGM. He said: “There are positive signals from the tanker market at present. Firstly, Euronav delivered VLCC rates of $35,000 per day (same as 4Q18) despite 1.2 mill barrels per day OPEC cuts and 28 new VLCC equivalents entering the global fleet during 1Q19.

“Secondly, US crude exports are running around 30% higher year on year. Thirdly, asset prices which historically have been a key valuation indicator for investors, continue to rise in both newbuild and secondhand values.

“Refinery maintenance programmes are more detailed and more prolonged this year than previous years and are likely to bring seasonal freight rate pressure forward to the second quarter. However, with increased cargo supply expected in the second half along with reduced tanker capacity from IMO induced retrofitting and potentially more Iranian vessels leaving the trading fleet, the outlook for the second half is encouraging,” he said.

During 1Q19, Euronav’s TI pool spot VLCCs averaged $35,195 per day, compared with $18,725 per day in 1Q18. The average timecharter rate was $27,6320 per day as against $34,000 per day in 1Q18.

As for the Suezmaxes, they averaged $27,380 per day on the spot market and $32,180 per day for a timecharter, compared with $14,000 and $23,850 per day in 1Q18.

The company retained around $785 mill of liquidity as at the end of March, 2019.

The 1Q19 proved to be an unusual and largely resilient one for the large crude tanker sector. The OPEC production cuts announced in 4Q18 impacted 1Q19 trading and represents around 3% of the crude which is seaborne each day, Euronav said.

Nearly 30 VLCC equivalents were delivered to the global fleet during the same period – an increase of 3% in fleet supply. Despite this demand reduction and increase in supply –the freight rates in VLCC terms were resilient posting $35,000 per day –equivalent to that delivered in 4Q18. VLCC rates in particular enjoyed a counter seasonal rally during February and March.

The continued growth of US crude exports continues to have multiple but positive ramifications for the tanker sector. The majority of this export is transporting long haul (Asia, Europe) which is absorbing a high level of tonnage. These vessels are often then ballasting  to the Atlantic basin further increasing the  ‘stretch’ of the global fleet.

This expansion is driving a ‘two-tier’ freight rate market with tonnage, primarily in the VLCC space, between the Atlantic and Middle East freight markets.

Asset prices continue to rise with the major categories of newbuild, five, 10 and 15 year old VLCCs and Suezmaxes all rising in value during  1Q19, compared to the previous Quarter. The key focus of this rise has been on second hand tonnage.

This is important as historically tanker equity values have had a stronger correlation with asset prices than earnings.

After a record year of recycling during 2018 activity was expected to be less active and this has proven to be the case with only one VLCC and a single Suezmax removed from the global fleet during 1Q19. With improved freight rates year on year and a vibrant market for older tonnage, based on potential fuel oil storage opportunities around IMO 2020 disruption, such a slowdown in recycling is to be expected in the short term.

However with the average fleet age for both VLCC and Suezmax fleets now around 10 years and a sizeable proportion of the fleet over 17 years of age (13% VLCC, 11% Suezmax) the pressure to recycle will remain elevated for owners of such tonnage.

Looking ahead, the tanker markets’ dynamic will be to expect some seasonal freight rate weakness during the spring/summer period as fewer barrels are moved to accommodate refinery maintenance programmes.

It is anticipated, however, that this seasonal pressure will be shorter than usual as a number of headwinds give way to tailwinds during the second half onwards.

Underlying demand remains robust with IEA maintaining  a forecast above longer term trend growth at 1.4 mill barrels per day for 2019. Oil supply should expand as increased exports from the US and Brazil replace lost OPEC barrels. The global refinery complex is forecast to reduce its maintenance programmes for the second half of 2019 as it gears up for the imposition of IMO 2020 in January next year, thus boosting second half year crude demand.

Euronav expects vessel supply to be disrupted by IMO motivated retrofitting of scrubbers with VLCC and Suezmaxes each expected to be absent from the market during this retrofit process reducing fleet capacity by potentially up to 2%.

In addition to this, there is the potential for more Iranian VLCC vessels to be removed from the fleet depending on the scope of US waivers and their renewal from May, 2019 (see above).



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