Euronav Returns to Black, Expects Further Freight Rate Recovery

Belgian tanker shipping giant Euronav reported a net profit of USD 0.1 million in the fourth quarter of 2018, tapping into the market recovery.

The results indicate a return to black compared on a quarterly basis, as Euronav had a net loss of USD 58.7 million in the third quarter of 2018. However, year-on-year the profit was lower, as Euronav’s profit in the fourth quarter of 2017 stood at USD 19.4 million.

“The VLCC trading performance in Q4 2018 gives an important signal on the structure of the large crude tanker market. VLCC freight rates trading at rates not seen in the last two years demonstrate an already tight balance between tanker demand and supply. The factors impacting the crude tanker market are very dynamic and likely to remain so for the foreseeable future. The fundamentals such as oil demand, ton mile expansion and vessel supply remain on an improving trajectory that should be reflected in a healthy rate environment,” Paddy Rodgers, CEO of Euronav, said.

The tanker shipping company said the results were affected by a number of exceptional non-cash items, including a capital loss of USD 3 million on the sale of the Suezmax Felicity despite being transacted at values well -above market.

Commenting on the market fundamentals, the company pointed to returning OPEC barrels, rising US exports and record Chinese imports, incentivized by the 35% fall in the price of crude during Q4, boosting usual Q4 seasonal uplift.

“US-China trade tensions have largely bypassed oil markets as US crude exports to China have diverted to similar ton mile destinations, e.g. South Korea, Japan and Taiwan. More recently direct US crude exports to China have restarted,” the company added.

Market Outlook

Even though recycling activity understandably slowed during the quarter, the large tanker fleet has matured with the average VLCC age in the global fleet rising 24% to 9,5 years since 2014, Euronav continued. This along with restricted access to capital for many operators implies time expired vessels will be a consistent feature going forward, driving a persistent level of recycling activity and restraining fleet growth.

Absorption of an above trend order book remains the key challenge for tanker operators during 2019, according to Euronav, and specifically during the first half of the year. Specifically, 79 VLCCs are set to enter the global fleet, while further 14 Iranian VLCCs are expected to exit the global fleet.

Preparation for IMO 2020 is also expected to reduce VLCC equivalent capacity given voluntarily dry docking for scrubber retrofitting (20) and US crude export capacity is anticipated to expand as pipeline constraints are lifted from mid-year (10). These factors, supported by a normalized demand, IEA forecast 1.4m bpd, and recycling patterns, imply an order book that is important but manageable, Euronav continued.

OPEC-led crude supply restrictions are also anticipated to bite during the first half of the year.

Moving forward, Euronav sees many opportunities from IMO-driven disruption in reducing capacity, further supply expansion from US exports, a substantially lower spot oil price stimulating demand and re-establishing a contango pricing structure provide supportive factors.

“Euronav retains flexibility via a strong balance sheet, high exposure to the 2019 tanker market with very limited dry docking activity and anticipates further freight rate recovery during 2019,” the company pointed out.

So far in the first quarter of 2019, the Euronav VLCC fleet operated in the Tankers International Pool has earned about USD 41,000 and 43% of the available days have been fixed. Euronav’s Suezmax fleet trading on the spot market has earned about USD 32,700 per day on average with 36% of the available days fixed, the company concluded.