The narrowing supply/demand balance and fears over COSCO tanker sanctions produced a spike in larger tanker rates that translated into Euronav achieving an average charter rate of US$61,700/day in Q4 2019
Euronav produced a sharp jump in revenue of US$355M in Q4 2019 compared to US$236M in Q4 2018. Full year results were US$932M in 2019 compared to US$600M in 2018. The profit for Q4 2019 was US$160M versus US$279,000 in Q4 2019 and the full year profit for 2019 was US$118M against a loss of US$110M in 2018.
The results for the publicly listed tanker company were above Wall Street expectations. Jefferies equity analyst Randy Giveans was bullish and noted the company had a cash balance of US$297M in Q4 2019, and he expects the company will generate a significant free cash flow over the coming quarters.
Euronav had already noted that the conditions existed for the increase in rates, which were mainly set by externalities: demand for crude oil recovered strongly during Q4 (IEA estimate 1.9 b/d for Q4 2019) on factors other than seasonality with a prolonged period of refinery maintenance reversing ahead of IMO 2020 coupled with GDP growth from improving trade conditions.
For large tankers, the demand profile has significantly changed producing longer tonne-mile trading routes principally from the Atlantic (US Gulf, Brazil and the new Johan Sverdrup field from Norway) shipping crude to the Far East.
Other disrupters include geopolitical tensions in the Middle East and large tankers temporarily leaving the active fleet to undergo scrubber and/or ballast water treatment retrofits.
Euronav’s chief executive officer Hugo De Stoop said “Tanker sector fundamentals improved further during Q4 to drive large tanker markets to their highest level since 2008. Specific catalysts have continued to influence short-term freight rates reflecting the current balance in market dynamics. Our fuel procurement strategy has delivered operational security over the key implementation period of IMO 2020.”
“With continued limited contracting of new vessels, an orderbook at a 25-year low and fleet expansion capital being rationed, the prospects for a sustainable cyclical upturn remain in place. The updated guidance on dividend policy provides a clear mechanism for future returns to shareholders”.
Euronav also noted that its IMO 2020 marine fuel sulphur cap plan is in full operation and noted that during 2019, the company purchased sufficient fuel to cover more than half of its compliant fuel requirements for 2020. The compliant fuel was fully tested before use, and the company declares it is keeping all its options open, including fitting scrubbers on its vessels.
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