Euronav’s chief executive Hugo De Stoop seems to have called the market correctly. The Euronav fleet has been positioned short on time charters and long on spot market exposure and has an IMO 2020 strategy that covers most eventualities
Mr De Stoop has taken the long view of the tanker market and weighed up the short-term impact on fundamentals. In the conference call on Q3 2019 earnings, he reiterated the conditions that led to the recent spike in tanker freight rates and how this will impact Euronav.
The short-term fundamentals are:
The long-term fundamentals consist of:
Adding to these generally positive fundamentals were the temporary factors of:
While the temporary factors may unwind, and Euronav notes that some VLCCs have already forsaken retrofit slots to re-enter the spot market, it sees the outlook as robust with underlying fundamentals of vessel supply and demand supportive to a stronger freight market of some duration. The effects of IMO 2020 should be a positive overlay during the current and subsequent quarters. On the earnings call, Mr De Stoop noted that those VLCCs abandoning retrofit slots will spread out scrubber fitment and by this action add to the demand for compliant fuel.
So far in Q4 2019, the Euronav VLCC fleet operating in the Tankers International Pool has earned about US$60,900 per day, with 60% of available days fixed. Euronav’s Suezmax fleet trading on the spot market has earned about US$27,300 per day on average, with 48% of available days fixed. The impact on Euronav’s future earnings should be positive. Mr De Stoop said “Euronav should benefit from it fully as we only have one drydock for 2019 and 90% of our trading fleet is currently exposed to the spot market.”
The Q3 earnings themselves were somewhat lacklustre, having been impacted by internal accounting requirements: the sale of the VLCC V.K. Eddie carried a US$1.4M loss in deferred taxes and there was a US$5.5M loss from swaps amortisation, a hangover from the Gener8 merger. The result was a net loss of US$22.9M (Q3 2018: a net loss of US$58.7M).
Euronav also announced the appointment of its new chief financial officer following Mr De Stoop’s move from that position to chief executive officer. Ms Lieve Logghe has held several senior finance positions and in 2018, she was promoted vice president, head of energy for ArcelorMittal Europe and energy procurement co-ordinator for ArcelorMittal worldwide with the clear aim of reducing its carbon footprint.
In other news, Euronav is taking advantage of a change in Belgium corporate law to introduce dividends on a quarterly basis. This will recycle cash back to shareholders quicker than the current Belgium system and is a more acceptable practice when investors compare Euronav to US-registered public tanker companies.
Hear more about the impact of IMO 2020 at the 2019 Tanker Shipping & Trade Conference, Exhibition and Awards. Voting is also now open for the Awards. See the nomination here.