Despite a net loss, Scorpio Tankers says its third quarter results show the company is well positioned to take advantage of the firming product tanker market and that its scrubber retrofit programme is on track
In the third quarter of 2019, Scorpio Tankers made a net loss of US$44.8M, somewhat smaller than the net loss of US$65M the company posted for the same period in 2018. For the first nine months of 2019, however, Scorpio’s net loss was US$60M, less than half the US$141M loss it posted in the same period of 2018.
The company paid US$803M in Q3 to buy the 19 subsidiaries that control the 19 Trafigura tankers Scorpio took over in September 2019.
Scorpio is also nearing the end of a scrubber retrofit programme across its fleet. The recent spike in tanker rates is an indication of the direction of the tanker markets, and Scorpio Tankers’ management is confident it has positioned the company to take advantage of the expected advantageous market conditions in 2020. Below are some of the key points from the earnings call.
Scorpio Tankers chairman and chief executive Emanuele Lauro said “We now stand in the foothills of a powerful inflection (brought about) by the confluence of seasonal, cyclical and structural changes (from) the impact of IMO 2020.”
As a seasoned tanker market stakeholder, Mr Lauro felt that there was reason to be optimistic. “It has been a long time coming; longer than we may have expected, but the waiting may now be over, and the best is (yet) to come,” he said.
Scorpio Tankers president and director Robert Bugbee echoed these sentiments: “It’s really hard not to be very grateful after 10 years or so of a bad market. Now, we have a lot to look forward to. Our markets are at very strong levels right now.”
Earnings are at comfortable levels ahead of the Northern Hemisphere’s winter, he said, attributing this in part to the restraint in the orderbook.
“I’d just like to highlight that we’ve got through another quarter with very few orders. Companies and capital markets are unwilling to make or fund speculative new orders.”
The slowdown in ordering will impact supply growth, Mr Bugbee said.
“Next year the (product tanker) fleet will start to age and it is actually possible that we could have small or zero effective fleet growth.”
In addition to the low order numbers, the tanker freight market spike in October saw some older LRs switch from clean product trades to crude oil trades, reducing supply and incurring additional costs for tank cleaning and approvals.
Regarding the Trafigura transaction, as Mr Bugbee noted, not only has Scorpio Tanker’s fleet grown in scale, but its deal with Trafigura has completely changed the scale of Scorpio’s access to market data.
“This is quite a unique deal in shipping," he said. "[Trafigura] is a major customer and user of product tankers with incredible information, market knowledge and expertise that actually wants the tanker operator to do well.”
He also noted that the higher market earnings created by the spike in the market has had a positive impact and taht the deal is already de-leveraging.
Given that the company expects the product tanker market to take an upward earnings curve, Scorpio’s executives were asked what the company would do with the extra earnings.
Management would not be drawn into a definitive answer on this, but the company retains some older higher interest rate loans and leases. The increase in cashflow would be an opportunity to refinance some of the deals.
How did the company rate the impact of IMO 2020 so far? Using a baseball analogy, Robert Bugbee said that it is the bottom of the first inning. There is little to indicate the level of reaction to the introduction of IMO 2020. The game has only just begun.
The outlook of the tanker markets is one of the topics that will be under discussion at the Tanker Shipping & Trade Conference, Exhibition and Awards to be held in London in November.