The Board of Directors of d’Amico International Shipping S.A. (Borsa Italiana: “DIS”) (hereinafter: “the Company”, “d’Amico International Shipping” or the “Group”), a leading international marine transportation company operating in the product tanker market, yesterday examined and approved the Company’s 2021 Third Interim Management Statements as at September 30th, 2021 (Q3 and 9M 2021 Financial Results).
MANAGEMENT COMMENTARY
Paolo d’Amico, Chairman and Chief Executive Officer of d’Amico International Shipping commented:
‘In the first nine months of 2021, DIS posted a Net loss of US$ (28.9) million and an Adjusted net loss of US$ (22.6) million, due the challenging freight markets we had to confront in the period. However, thanks to our prudent commercial strategy we were able to limit to a certain extent the negative effects of the current spot market, whilst maintaining a very solid financial position.
Looking at our TCE performance, DIS achieved a daily spot rate of US$ 10,635 in the first 9 months of 2021 (US$ 18,592 in the first 9 months of 2020) and of US$ 9,248 in Q3 2021 (US$ 12,866 in Q3 2020). As usual, we maintained a high level of time-charter coverage throughout the period and we even extended it when possible. In fact, 48.2% of DIS’ total employment days in the first 9 months 2021 were fixed through ‘time- charter’ contracts at an average daily rate of US$ 15,414. Thus, we managed to achieve a total blended
daily TCE (spot and time-charter) of US$ 12,939 in the first 9 months of 2021 and US$ 12,113 in the third quarter of the year, significantly outperforming the current weak market.
Despite the weak demand in the third quarter of the year, we expect the product tanker market to show some signs of improvement towards the end of 2021, with an even stronger recovery going into 2022. In fact, robust global economic growth, rising vaccination rates, steadily increasing mobility levels and the easing of social distancing measures should benefit oil demand. The IEA has recently increased its demand forecast for 2021 and 2022, with global oil demand now expected to rise by 5.5 mb/d in 2021, and 3.3 mb/d in 2022 to reach 99.6 mb/d, slightly above pre-Covid levels. In addition, soaring natural gas prices have prompted a switch to oil that, according to the IEA, could boost demand by 500 kb/d compared with normal conditions. More oil will also be available for transportation with OPEC+ output volumes set to gradually increase up to September 2022.
Longer term we maintain a very positive outlook, as we see strong fundamentals both on the demand and the supply side. The pandemic put unprecedented pressure on refinery margins, pushing older and less competitive refineries out of the market and accelerating the dislocation process, which is gradually moving refineries far from some of the key consuming centres. In particular, we expect several of the older refineries located in Europe, in the US, in Australia and New Zealand will be replaced with modern units located mainly in Asia and the Middle East. As we stated several times, we expect this to be extremely beneficial for product tankers’ ton-mile demand.
We also expect tonnage supply growth to be rather limited going forward. A large number of demolition yards were closed for most of 2020 due to the pandemic. However, the rebound in steel prices coupled with weak freight markets has increased tonnage recycling. In fact, only 10 MR and LR1 vessels were scrapped in 2020 vs. 44 ships in the first nine months of 2021. The new technical and operational standards required by the IMO (Energy Efficiency Existing Ship Index-EEXI and Annual operational carbon intensity indicator-CII) and by the EU (Emissions Trading Scheme-ETS and Fuel EU Maritime), will lead to a further acceleration in the scrapping of old, less efficient tankers and will force part of the world fleet to slow- steam to reduce emissions. Furthermore, important cargo charterers including oil majors such as Shell and Total, as well as leading trading houses such as Trafigura, have recently signed the ‘Sea-cargo charter’ with the aim of disclosing the CO2 emissions of the vessels they operate, and reducing these in line with the IMO targets. At the same time, we expect newbuilding activity to be limited, due to capital constraints, significant uncertainties regarding the technological developments required to meet the increasingly demanding environmental regulations, rising newbuilding costs (according to Clarksons new building prices for MR and LR1 have increased by just over 15% in 2021) and limited yard availability for deliveries over the next two years.
I believe DIS is in the perfect position to face the above regulatory headwinds, thanks to our top-quality technical management and to the large fleet renewal plan we implemented in the last years, through substantial newbuilding orders and the sale of old tonnage. In fact, DIS today owns and operates a very young (7.2 years average age for our owned and bareboat vessels vs. 11.5 years industry average age) and mainly ‘Eco’ fleet, positioning us amongst the top-tier product tanker players in the world.
Today DIS has the financial wherewithal to overcome the current weak markets before the imminent upswing. Our network, reputation and expertise as well as the strategic choices we have made in recent years, allow us to look at the future with optimism. I firmly believe our strategy will result in long-term value generation to the benefit of our Shareholders.’
Carlos Balestra di Mottola, Chief Financial Officer of d’Amico International Shipping commented:
‘In the first 9 months of 2021, DIS’ posted a Net loss of US$ (28.9) million vs. a Net profit of US$ 15.4 million in the same period of 2020 (Q3 2021: Net loss of US$ (13.8) million vs. Q3 2020: Net loss of US$ (1.7) million), as a result of the much weaker freight market relative to the same period of last year. In addition,
our 9 months 2021 results were negatively affected by US$ (6.3) million non-recurring negative effects, mainly due to the impairment booked on a vessel owned by d’Amico Tankers d.a.c. classified as ‘asset held for sale’ (in accordance with IFRS 5) at the end of the period, with the difference between its fair value less cost to sell and its book value charged to the Income Statement.
DIS’ daily spot rate was of US$ 10,635 in the first 9 months of 2021 vs. US$ 18,592 in the same period of last year (Q3 2021: US$ 9,248 vs. Q3 2020: US$ 12,866). However, thanks to our commercial strategy we benefited from a contract coverage of 48.2% in the first 9 months of the year, at a daily average rate of US$ 15,414. Therefore, our total daily average rate (which includes both spot and time-charter contracts) was of US$ 12,939 in the first 9 months of 2021 (US$ 12,113 in Q3 2021), significantly outperforming the prevailing market.
DIS’ EBITDA amounted to US$ 47.9 million in the first 9 months of 2021 vs. US$ 103.4 million achieved in the same period of 2020 and DIS’ operating cash flow was positive, amounting to US$ 24.4 million, compared with US$ 70.5 million generated in the same period of last year.
Despite the weak tanker spot market, we saw market net asset value increasing in the second quarter of the year and gaining further momentum going into the third quarter, highlighting the positive medium- term outlook for our industry. According to the valuation report provided by a primary broker, the estimated market value of DIS’ owned and bareboat fleet as at 30 September 2021 was of US$ 743.3 million, having risen by 6.4% quarter-on-quarter and by 5.4% year-to-date.
Thanks to our deleveraging plan and the liquidity generated over the last few years through vessel disposals and equity capital increases, DIS can count today on a very strong financial structure, a strategic priority for our Company. As at the end of September 2021, DIS had Cash and cash equivalents of US$ 42.0 million and the ratio between DIS’ Net financial position (excluding IFRS 16) and its fleet market value was of 60.9% vs. 64.9% at the end of June 2021, 65.9% at the end of December 2020, 64.0% at the end of 2019 and 72.9% at the end as at the end of 2018.
Our strong balance sheet and the very modern and mainly ‘Eco’ fleet we operate today, provide us the needed strategic and operational flexibility, to comfortably navigate through the current market headwinds, whilst positioning us favourably to fully benefit from the upcoming recovery.’
FINANCIAL REVIEW
SUMMARY OF THE RESULTS IN THE THIRD QUARTER AND NINE MONTHS OF 2021
In the third quarter of the year, the tanker market continued to face challenges amid weak demand, especially in the crude sector, due to the lingering impacts of the Covid-19 pandemic and ongoing deep OPEC+ production cuts. The market is expected to see some improvements towards the end of 2021, with OPEC+ output volumes set to increase gradually in the remaining months of the year.
In August 2021, Hurricane Ida, one of the worst storms that has ever hit the US Gulf Coast, shut down 1.7 million b/d of oil production, resulting in a supply loss estimated by the IEA in 30 million barrels. With the crude market structure in backwardation since the beginning of the year, there has been a significant drawdown of global inventories and reduced demand for floating storage, putting further pressure on the tanker markets.
In Q3 2021, refinery throughput was much lower than expected earlier in the year by the IEA, resulting in draws in inventories of refined products of 1.7 million b/d during the quarter, the largest decrease in
stocks in eight years. This has likely been one of the driving forces behind the very strong refining margins, which doubled during the quarter in Europe and Singapore, reaching levels last seen in Q1 2020.
Demand developments continued posing challenges to refiners. Demand for LPG, naphtha, fuel oil and other niche products has been higher than pre-pandemic levels in both Q2 2021 and Q3 2021. Gasoline, diesel, and jet fuel overall are still lagging, despite weekly or monthly seasonal peaks registered in individual countries for road transport fuels. These three fuels remain the pillar for refinery margins for most refiners with the exception of petrochemical integrated plants.
The one-year time-charter rate is always the best indicator of spot market expectations and as at the end of September 2021 was assessed at around US$ 11,750 per day for a conventional MR2, with an Eco MR2 assessed at a premium of around US$ 2,000 / 2,500 per day.
In the first 9 months of 2021, DIS recorded a Net loss of US$ (28.9) million vs. a Net profit of US$ 15.4 million posted in the same period of last year. Such negative variance is attributable to a much weaker product tanker market relative to the first nine months of 2020. Excluding results on disposal and non- recurring financial items from the first 9 months of 2021 and 2020, as well as the asset impairment and the effects of IFRS 16, DIS’ Net result would have amounted to US$ (22.6) million in the first 9 months of the current year compared with US$ 26.1 million recorded in the same period of 2020. In Q3 2021, DIS posted a Net loss of US$ (13.8) million vs. a Net loss of US$ (1.7) million registered in the third quarter of last year. Excluding non-recurring items from both Q3 2021 and Q3 2020, the Net result would have been of US$ (8.2) million and US$ (0.4) million respectively.
DIS generated an EBITDA of US$ 47.9 million in the first 9 months of 2021 vs. US$ 103.4 million achieved in the same period of last year, whilst its operating cash flow was positive for US$ 24.4 million compared with US$ 70.5 million generated in the same period of last year.
In terms of spot performance, DIS achieved a daily spot rate of US$ 10,635 in the first 9 months of 2021 vs. US$ 18,592 in the same period of 2020 (Q3 2021: US$ 9,248 vs Q3 2020: US$ 12,866), as a result of the much weaker market relative to the same period of last year.
At the same time, 48.2% of DIS’ total employment days in the first 9 months of 2021, were covered through ‘time-charter’ contracts at an average daily rate of US$ 15,414 (9 months 2020: 63.5% coverage at an average daily rate of US$ 16,041). A good level of time charter coverage is one of the pillars of DIS’ commercial strategy and allows it to mitigate the effects of the spot market volatility, securing a certain level of earnings and cash generation even throughout the negative cycles. DIS’ total daily average rate (which includes both spot and time-charter contracts) was of US$ 12,939 in the first 9 months of 2021 compared with US$ 16,973 achieved in the same period of the previous year.
OPERATING PERFORMANCE
Time charter equivalent earnings were US$ 42.1 million in Q3 2021 (US$ 54.1 million in Q3 2020) and US$
131.0 million in the first 9 months of 2021 (and US$ 204.2 million in the first 9 months of 2020). The total amount for the first 9 months of last year included US$ 6.2 million ‘time charter equivalent earnings’ generated by vessels under commercial management at the time (there was no income generated from such contracts in the first nine months of 2021), which was offset by an almost equivalent amount reported under ‘time-charter hire costs’.
In detail, DIS realized a daily average spot rate of US$ 9,248 in Q3 2021 (US$ 12,866 in Q3 2020) and of US$ 10,635 in the first 9 months of 2021 (US$ 18,592 in the first 9 months of 20201). Such negative variance relative to the first nine months of last year is attributable to the much weaker market conditions.
In the first 9 months of 2021, DIS maintained a good level of ‘coverage’ (fixed-rate contracts), securing an average of 48.2% (9 months 2020: 63.5%) of its available vessel days at a daily average fixed rate of US$ 15,414 (9 months 2020: US$ 16,041). In addition to securing revenue and supporting the operating cash flow generation, these contracts enabled DIS to strengthen its historical relationships with the main oil majors.
DIS’ total daily average TCE (Spot and Time Charter)2 was US$ 12,113 in Q3 2021 (US$ 14,864 in Q3 2020) and US$ 12,939 in the first 9 months of 2021 (US$ 16,973 in the first 9 months of 2020).
EBITDA was of US$ 14.9 million in Q3 2021 (US$ 23.9 million in Q3 2020) and US$ 47.9 million in the first 9 months of 2021 (US$ 103.4 million in the first 9 months of 2020), reflecting the weaker freight markets experienced in the first nine months of the current year.
Depreciation, impairment, and impairment reversal amounted to US$ (22.2) million in Q3 2021 (US$ (17.1) million in Q3 2020) and to US$ (54.8) million in the first 9 months of 2021 (US$ (57.6) million in the first 9 months of 2020). The amount for the first 9 months of 2021 includes US$ (5.8) million impairment booked on a vessel owned by d’Amico Tankers d.a.c. classified as ‘asset held for sale’ (in accordance with IFRS 5) at the end of the period, with the difference between its fair value less cost to sell and its book value charged to the Income Statement. The amount for the first 9 months of 2020 includes US$ (6.3) million impairment booked on five vessels owned by d’Amico Tankers d.a.c. and one vessel owned by Glenda International Shipping (a jointly controlled entity with the Glencore Group, in which d’Amico Tankers d.a.c. has a 50% interest), which were classified as ‘assets held for sale’ (in accordance with IFRS 5) as at 30 September 2020, with the difference between their fair value less cost to sell and their book value charged to the Income Statement.
EBIT was of US$ (7.3) million in Q3 2021 (US$ 6.9 million in Q3 2020) and of US$ (6.9) million in the first 9 months of 2021 (US$ 45.8 million in the first 9 months of 2020).
Due to the challenging market experienced in the current year, DIS recorded a Net loss of US$ (13.8) million in Q3 2021 vs. US$ (1.7) million in Q3 2020 and a Net loss of US$ (28.9) million in the first 9 months of 2021 vs. a Net profit of US$ 15.4 million in the same period of last year.
Excluding results on disposals and non-recurring financial items from Q3 2021 (US$ 0.3 million3) and from the same period of 2020 (US$ (0.7) million4), as well as the asset impairment (US$ (5.8) million in the third quarter of 2021 and US$ (0.3) million in the same period of 2020) and the net effects of IFRS 16 from both periods (Q3 2021: US$ (0.1) million and Q3 2020: US$ (0.4) million), DIS’ Net result would have amounted to US$ (8.2) million in the third quarter of 2021 compared with US$ (0.4) million recorded in the same quarter of last year.
Excluding results on disposals and non-recurring financial items from the first 9 months of 2021 (US$ 0.05 million5) and from the same period of 2020 (US$ (3.2) million6), as well as the asset impairment (US$ (5.8) million in the first 9 months of 2021 and US$ (6.3) million in the same period of 2020) and the net effects of IFRS 16 from both periods (9 months 2021: US$ (0.6) million and 9 months 2020: US$ (1.1) million), DIS’ Net result would have amounted to US$ (22.6) million in the first 9 months of 2021 compared with US$
26.1 million recorded in the same period of the previous year.
CASH FLOW AND NET INDEBTEDNESS
DIS’ net cash flow for the first 9 months of 2021 was negative for US$ (20.9) million vs. US$ 22.1 million in the same period of 2020 (Q3 2021: US$ (10.2) million vs. Q3 2020: US$ 6.7 million).
Cash flow from operating activities was positive, amounting to US$ 5.8 million in Q3 2021 vs. US$ 11.4 million in Q3 2020, and to US$ 24.4 million in the first 9 months of 2021 vs. US$ 70.5 million in the first 9 months of 2020. This negative variance is attributable to the much weaker spot market in the first 9 months of 2021 relative to the same period of last year.
DIS’ net debt as at 30 September 2021 amounted to US$ 539.2 million compared to US$ 561.5 million as at 31 December 2020. Due to the application of IFRS 16 these balances include an additional liability, amounting to US$ 86.9 million as at the end of September 2021 vs. US$ 96.4 million as at the end of 2020. The net debt (excluding IFRS16) / fleet market value ratio was of 60.9% as at 30 September 2021 vs. 65.9% as at 31 December 2020 and compared with 64.0% as at the end of 2019 and 72.9% as at the end of 2018.
SIGNIFICANT EVENTS OF THE FIRST NINE MONTHS
In the first nine months of 2021 the main events for d’Amico International Shipping Group were the
following:
D’AMICO INTERNATIONAL SHIPPING S.A.:
Executed buyback program: On 14 January 2021, d’Amico International Shipping S.A. announced that during the period between 5 January and 13 January 2021, n. 1,543,118 own shares (representing 0.124% of the outstanding share capital of the Company) were repurchased on the regulated market managed by Borsa Italiana S.p.A. at the average share price of Euro 0.0949, for a total consideration of Euro 146,469.26.
On 25 January 2021, d’Amico International Shipping S.A. announced that during the period between 14 January and 22 January 2021, n. 1,305,897 own shares (representing 0.105% of the outstanding share capital of the Company) were repurchased on the regulated market managed by Borsa Italiana S.p.A. at the average share price of Euro 0.0936, for a total consideration of Euro 122,217.85. As at 22 January 2021, d’Amico International Shipping S.A. held nr. 18,326,911 own shares, representing 1.48% of its outstanding share capital.
The transactions were made and coordinated by an independent equity broker duly engaged for this purpose, Equita SIM S.p.A., in compliance with the Board of Directors resolution of 13 November 2019 and under the authorization to purchase own shares approved by DIS Shareholders’ Meeting on 20 April 2016 (as reminded by means of a press release issued on 13 November 2019).
Medium-to-Long Term Incentive Plan: With reference to the management of the bonus relating to the conclusion of the first cycle (vesting period 2019-2020) of the Medium-to-Long Term Incentive Plan adopted by the Company, (hereinafter the LTI Plan), since DIS reached the objectives set, the Beneficiaries were rewarded with the relevant “cash” portion of the bonus with the final balance paid in shares, through a deferred allocation over two years and in two tranches with the first one in 2022, according to the provisions of the Plan’s Information Document (published in the Corporate Governance section of DIS’ website).
Buyback programme: On 6 May 2021, the Board of Directors of d’Amico International Shipping S.A. resolved to start an own shares buy-back programme pursuant to the new authorization recently issued by the annual general meeting of shareholders held on 20 April 2021 (the “Programme”). As per the shareholders’ new authorization, the Company can repurchase up to 186,157,950 ordinary shares of the Company (including the Own Shares already repurchased and held in the Company’s portfolio in compliance with Article 430-15 of the Luxembourg Law).
According to the resolution of the Board of Directors the maximum value of own shares that can be repurchased under the Programme cannot exceed Euro 45,000,000.00.
The authorization to repurchase and sell the Company’s own shares in one or more tranches has been granted to the Board of Directors, with the option to delegate, for a maximum period of five (5) years from April 20th, 2021 (i.e. date of the relevant shareholder’s meeting approving the renewal of the authorization) and thus expiring on April 20th, 2026.
Regarding the Programme’s implementation, the Company confirms that the repurchase and disposal of own shares shall be carried out in one or more tranches on the regulated market managed and organized by Borsa Italiana S.p.A. in accordance with the relevant provisions of the Market Abuse Regulation, so as to assure a fair deal to all the shareholders and will be executed and coordinated by Equita Sim S.p.A., an equity broker that was duly engaged for this purpose by the CFO, who will act completely independently and without any influence from the Company regarding the moment of such repurchases and disposals, in accordance with the relevant applicable laws and of the above mentioned Shareholders’ new authorization. In all cases, each transaction shall be executed and publicized in accordance with Luxembourg and/or Italian laws and regulations where applicable, as well as according to the relevant provisions concerning exemptions from market abuse applicable legislation for buyback programs and stabilization of financial instruments. In particular, any authorized own shares sales operations shall be carried out at any time, not being subject to any time limit and notably in order to pursue the purposes of the Programme.
Fourth exercise period of DIS’ Ordinary shares warrants 2017-2022: On 31 May 2021, d’Amico
International Shipping S.A. confirmed that the holders of “d’Amico International Shipping’s Warrants 2017
– 2022”, ISIN code n. LU1588548724 (the “Warrants”) could apply for their Warrants to be exercised on any Banking Day (days on which banks in Luxembourg and in Italy are generally open for business as defined in the terms and conditions of the Warrants) starting from 1st June, 2021 until 30th June, 2021, both dates included (the “Fourth Exercise Period”), with the right to subscribe for newly issued ordinary shares of DIS admitted to trading on the MTA market organized and managed by Borsa Italiana S.p.A., each without par value and with the same rights and features as DIS’ ordinary shares outstanding at the issue date (the “Warrant Shares”), in the ratio of one (1) ordinary DIS share for one (1) Warrant exercised. The exercise price for the Fourth Exercise Period amounted to EUR 0.382 (zero point three hundred and eighty-two Euros) per Warrant Share.
Capital increase following the fourth exercise period of DIS’ Ordinary shares warrants 2017-2022: on 2 July 2021 following the completion of the Fourth Warrants exercise period, in which 343 Warrants were exercised, leading to the issuance of 343 new ordinary shares, the Company’s share capital amounted to US$ 62,052,667.45, divided into 1,241,053,349 shares with no nominal value.
D’AMICO TANKERS D.A.C.:
Vessel Purchase: In February 2021, d’Amico International Shipping S.A. announced that its operating subsidiary d’Amico Tankers d.a.c. exercised its purchase option on the M/T High Priority, a 46,847 dwt MR product tanker vessel, built in 2005 by Nakai Zosen, Japan, for a consideration of US$ 9.7 million. The Vessel had been sold and leased back by d’Amico Tankers in 2017, for a 5-year period, with purchase options starting from the 2nd anniversary and a purchase obligation at the end of the 5th year.
‘Time Charter-Out’ Fleet: In January 2021, d’Amico Tankers d.a.c. extended a time charter-out contract with a leading trading house for two of its LR1 vessels for 9-18 months, both starting from January 2021.
In February 2021, d’Amico Tankers d.a.c. fixed one of its Handy-size vessels with an oil-major for 6 months with an option for a further 6 months, starting from March 2021.
In March 2021, d’Amico Tankers d.a.c. extended a time charter-out contract with an oil-major for one of its Handy-size vessels for 12 months, starting from the end of May 2021.
In April 2021, d’Amico Tankers d.a.c. fixed one of its Handy-size vessels with a leading trading house for 12 months with an option for further 12 months, starting from the end of April 2021.
In May 2021, d’Amico Tankers d.a.c. fixed one of its MR vessels with a leading trading house for 12 months with an option for further 12 months, starting from the end of May 2021, extended a time charter-out contract with an oil-major for one of its MR vessels for 24 months, starting from mid-September 2021 and extended a time charter-out contract with a leading trading house for one of its LR1 vessels for 6 months, starting from mid-September 2021.
In June 2021 d’Amico Tankers d.a.c. extended a time charter-out contract with an oil-major for one of its LR1 vessels for 6 months with an option for a further 6 months, starting from mid-July 2021 and fixed one of its MR vessels with a leading trading house for 12 months with an option for further 12 months starting mid-June 2021.
In July 2021, d’Amico Tankers d.a.c. fixed one of its Handy-size vessels with a reputable counterparty for 6 months with an option for a further 3 months, starting from July 2021.
In September 2021 d’Amico Tankers d.a.c. fixed one of its LR1 vessels with a leading trading house for 6 months with an option for further 6 months, starting in September 2021.
• ‘Time Charter-In’ Fleet: the time-charter-in contracts for the M/T SW Southport I and M/T SW Tropez I, two MR vessels built in 2004, ended and the vessels were redelivered to their owners in January and February 2021, respectively.
SIGNIFICANT EVENTS SINCE THE END OF THE PERIOD AND BUSINESS OUTLOOK
D’AMICO TANKERS D.A.C.:
‘Bareboat Charter-Out’ Fleet: In October 2021, d’Amico Tankers d.a.c. fixed one of its LR1 vessels on a 5- year bareboat charter contract with a reputable industrial counterparty. In addition, the bareboat charterer has the option to extend the contract for two further years.
‘Time Charter Out’ Fleet: In October 2021, d’Amico Tankers d.a.c. extended a time charter out contract with a leading trading house on one of its MR vessels for 6 months with an option for further 6 months.
In November 2021, d’Amico Tankers d.a.c. fixed one of its LR1 vessels with a leading trading house for 6 months with an option for further 6 months, starting in November 2021.
Vessel Sale: In October 2021, d’Amico Tankers d.a.c signed a memorandum of agreement for the sale of the M/T High Venture, a 51,087 dwt MR product tanker vessel, built in 2006 by STX, South Korea, for a consideration of US$ 10.7 million.
The profile of d’Amico International Shipping’s vessels on the water is summarized as follows.
BUSINESS OUTLOOK
The key drivers that should affect the product tankers freight markets and d’Amico International Shipping’s performance are (i) the growth in global oil supply, (ii) refinery margins and throughput, (iii) demand for refined products, (iv) the structure of forward prices for both crude oil and refined petroleum products, (v) the product tankers’ fleet growth rate, (vi) the efficiency of the fleet due to among other congestion and average sailing speeds and (vii) average sailing distances. Some of the factors that could drive a recovery in the product tankers market in the medium-term are detailed below:
Product Tanker Demand
• In their October report, the IMF projected the global economy to grow by 5.9% in 2021 and by a still very fast 4.9% in 2022 (a decrease of 0.1 percentage points relative to their July 2021 forecast).
The downward revision for 2021 reflects lower estimates for advanced economies (in part due to supply disruptions) and for low-income developing countries, largely due to worsening pandemic dynamics. This is partially offset by stronger near-term prospects among some commodity- exporting emerging markets and other developing economies. Employment is generally expected to continue lagging the recovery in output. Beyond 2022, global growth is projected to moderate to about 3.3% over the medium term. In particular, advanced economies’ output is forecasted to exceed pre-pandemic medium-term projections (largely reflecting sizable anticipated further policy support in the United States and Europe). By contrast, persistent output losses are anticipated for the emerging markets and developing economies due to slower vaccine rollouts and generally less policy support compared to advanced economies.
• According to the IEA, OECD total oil industry stocks posted a large decline for the third consecutive month in August, driving them outside the bottom of the most recent five-year range. OECD total industry stocks
fell 27.9 million barrels, or 900,000 b/d, to 2,824 million barrels. A less than seasonal build in industry product stocks was the main driver. Total oil inventories stood 214.8 million barrels below the 2016-2020 average and at 162.2 million barrels lower than the pre-Covid 2015-2019 average. In terms of forward demand, OECD industry stocks covered 61.8 days at end-August, a decrease of
0.4 days month-on-month and 3.7 days less relative to the 2016-2020 five-year average.
• According to the IEA’s October report, refinery runs are expected to increase by 3.2 million b/d between September and December ’21, with December volumes expected to be nonetheless 2.3 million b/d lower than in the same month of 2019.
• A switch from gas to oil for electricity production, has the potential to create pent-up demand during the upcoming winter in the Northern hemisphere. According to the IEA’s October ‘21 report the additional demand for power generation relative to normal conditions could amount to 0.5 million b/d.
• According to IEA’s October ’21 report oil demand in ’22 is expected to increase by 3.3 million b/d relative to ’21.
• In ‘22 the IEA expects refining throughputs to continue increasing, overtaking pre-Covid levels in the second-half of the year.
• In their September ‘21 outlook, Clarksons estimates that in ‘22 the product tanker demand will
grow by 5.3%, well above the expected increase in fleet supply (see below).
• More than 70% of new refining capacity in the next four years will be located east of Suez. The EIA estimates that around 800,000 b/d of refining capacity has been closed in North America since the pandemic began. Engen have announced the conversion of their 120,000 b/d refinery in Durban (responsible for approximately 17% of the country’s fuel production) into a terminal/storage facility. In the long run, recovering demand and structural shifts in the refining landscape are likely to boost long-haul product trades.
Product Tanker Supply
• At the beginning of the year Clarksons estimated 97 MRs and LR1s would have been delivered in 2021, of which 77 should have been launched in the first nine months of the year. In fact, only 57 such vessels were delivered in the first three quarters of 2021.
• In their September 2021 outlook, Clarksons estimates that in 2022 the product tanker fleet will grow by only 1.4%.
• A large number of demolition yards were temporarily shut in 2020 during the pandemic. However, the rebound in steel prices has improved demand for tonnage recycling. Demolition is expected to continue at a sustained pace in the near future, as long as the freight markets remain weak.
• According to Clarksons, new building prices for MR and LR1 have increased by just over 15% in 2021. This is attributed mostly to a reduction in tanker new building slots, due to sizeable orders in other sectors, and to an increase in the price of steel.
• According to Clarksons, 6.3% of the MR and LR1 fleet is over 20 years old, whilst the current orderbook in these segments represents only 4.8% of the current trading fleet.
• The IMO’s 2030 and 2050 targets for reducing greenhouse gas emissions are high on the shipping agenda. Many owners and banks now require ‘green recycling’ of vessels in line with EU and IMO conventions, while the EU is set to include shipping in its Emissions Trading Scheme. Furthermore, important cargo charterers including oil majors such as Shell and Total, as well as leading trading houses such as Trafigura, have recently signed the Sea cargo charter with the aim of disclosing the CO2 emissions of the vessels they operate, and reducing these in line with the IMO targets. During the Marine Environmental Committee’s (MEPC) last meeting (MEPC 76) in June this year, measures were adopted which will be enforceable from 1 November 2022, requiring operators to measure their vessels’ energy efficiency existing ship index (EEXI), reflecting their technical efficiency, and their carbon intensity indicator (CII), assessing how efficiently they are managed. Both measures aim to cut emissions progressively from 2023 to 2030.
The expected technological change required to meet increasingly demanding environmental regulation is reducing appetite for newbuilding orders, since such vessels could be obsolete soon after delivery. Furthermore, the increase in newbuilding costs and decrease in yard availability is also negatively affecting the appetite for new constructions.
Source: d’Amico International Shipping S.A
