TORM: Product Tanker Market to Benefit from 2020 Sulphur Cap
The International Maritime Organization (IMO) sulphur cap will lead to an incremental increase in product tanker trade during 2019 and 2020, Danish shipping company TORM believes.
As explained, the reduction in the global limit for sulphur emissions from 3.5% to 0.5% and the accompanying shift in marine fuel consumption will lead to higher trade volumes of clean petroleum products, which will benefit the product tanker market.
“Following challenging market conditions for the majority of 2018, product tanker rates have rebounded significantly towards the end of the year, and positive dynamics continue to be present. In particular, the implementation of new restrictions on sulfur emissions is expected to positively impact the product tanker market by increasing demand for clean petroleum products,” Christopher H. Boehringer, Chairman of the Board, commented.
The company has been actively preparing for the new environmental regulations, committing to order 21 scrubbers for its fleet with options for an additional 18 scrubber systems. With these orders, TORM signed a letter of intent for installations on up to a total of 39 vessels, or approximately half of TORM’s fleet.
What is more, TORM entered into a joint venture with the scrubber manufacturer ME Production and the Chinese yard GSI to manufacture scrubbers in China intended for both newbuilds and retrofitted vessels. The partnership comes at a time when demand for scrubbers is expected to rise significantly.
TORM closed 2018 with an EBITDA of USD 121 million, compared to USD 158 million in 2017. The 2018 loss before tax amounted to USD 33 million, against a profit of USD 3 million seen a year earlier.
For the full year 2018, TORM achieved time charter equivalent (TCE) rates of USD/day 12,982, compared to USD/day 14,621 in 2017.
In the third quarter of 2018, freight rates reached historically low levels due to reduced trading volumes and continued cargo cannibalization by newbuilt crude tankers opting for clean cargos on their maiden voyage. Towards the end of 2018 and early 2019, the broader tanker markets experienced a significant recovery with freight rates reaching levels last seen towards the end of 2015 and the beginning of 2016.
“The product tanker market has rebounded significantly since November 2018, and looking ahead, we are well-positioned to leverage the ongoing market recovery, illustrated by a 43% increase in freight rates achieved so far in the first quarter of 2019 compared to 2018,” Jacob Meldgaard, Executive Director, said.
On January 26, 2018, TORM completed an equity raise through a private placement of USD 100 million. The new equity increased TORM’s ability to pursue attractively priced growth opportunities, including the ongoing newbuilding program, according to the company.
In 2018, TORM ordered additional three MR vessels from GSI, bringing the total remaining newbuilding program to two LR1s and seven MRs that are expected to be delivered in 2019 and through the first quarter of 2020. All of them will be equipped with scrubbers.
During the previous year, the company also sold four older vessels for USD 27 million. Three of the vessels were delivered to their new owners in 2018, and one vessel was delivered in the first quarter of 2019. In the first quarter of 2019, TORM also sold and delivered one older MR vessel.
As of December 31, 2018, TORM’s fleet consisted of 72 owned vessels, three chartered vessels and nine vessels on order, including vessels for which a sale has been agreed. The company’s fleet including newbuildings had a market value of USD 1,675m based on broker valuations.
“Looking ahead, I believe TORM will continue to derive significant benefit from the scale of its operations, the integrated One TORM platform and the strong company values,” Boehringer concluded.