Recovery signalled in the chemical tanker market

Stolt-Nielsen Limited has announced its financial results for Q3 2019. Opening the call, the company’s chief executive officer, Niels G Stolt-Nielsen, paid tribute to the efforts of the crew of Stolt Groenland in fighting the blaze in Ulsan, South Korea last week and said that the cause was being investigated.

Mr Stolt-Nielsen was bullish on the prospects for the chemical tanker industry. Referring to Stolt-Nielsen’s own chemical tanker time-charter index, he noted the index descended below the historical low to a new low of 0.53 at the end of 2018. The index has rested on this trough but in Q3 2019 the index rose to 0.54.

“I believe this uptick is the start of the recovery in the chemical tanker market,” said Mr Stolt-Nielsen. He also pointed to other indicators such as global GDP growth, which is forecast to grow by between 2% and 4% in 2020. According to Clarkson Research Services data presented during the call, there is a near perfect correlation (0.90) between global GDP growth and demand growth in the specialised chemical tanker trades.

He noted the orderbook was relatively benign and said “I sincerely believe we have reached the bottom on the fundamentals.” The main issues the chemical tanker market faced was the possibility of a “political recession” brought about by the ongoing US–China trade war and events in the Middle East.

The positive sentiment carried on through to the financials. Although the group had only achieved a “meagre” profit of US$3.7M, the company had raised US$800M in funds from tanker fleet sale and leaseback and other sources. This is being used to pay down expensive debt (mainly bonds due in 2019 and 2020). By the end of 2020, all divisions in Stolt-Nielsen Limited would be generating unencumbered cash.

Stolt Tankers reports it has so far achieved a 100% pass rate of passing through any increases in bunker prices due to IMO 2020. There are some time charters due for renewal in October 2019 that would transition IMO 2020, but the CEO did not anticipate any problems in agreeing similar clauses. Of the 104 tankers in the fleet, only 20 have been earmarked for scrubbers, six newbuildings and 14 older ships undergoing retrofit. The company is also spending US$23M on ballast water treatment systems for an undisclosed number of vessels.

Before the earnings call, Stolt-Nielsen Limited had separately announced the appointment of a new president for Stolt Tankers. The appointment of Lucas Vos as president of Stolt Tankers takes effect from 11 October 2019. Mr Vos succeeds Mark Martecchini, who will assume management of the division’s shipowning team and ongoing responsibility for Stolt Tankers’ mission-critical business transformation programme.

This is believed to be a reference to the forthcoming IPO. Several times in the conference call Mr Stolt-Nielsen referred to the IPO as a near-term project. As a former chief commercial officer and member of the executive board of Maersk Line, it would appear his appointment is to lead Stolt Tankers through an IPO.

Mr Stolt-Nielsen commented “The appointment of Lucas Vos while maintaining Mark Martecchini’s experience and deep knowledge of our operations ensures a smooth transition in the management team of Stolt Tankers.”