In HohumYNWA’s shipping universe there is a concept of a “biggie”. Belgian tanker company, Euronav (EURN), is a tanker “biggie”
Why?
a. Euronav (EURN) has a large tanker fleet, including 45 VLCCs and 3 VLCC newbuilds on order (largest VLCC fleet among Publicly traded companies)
b. Euronav (EURN) manages (via charter-ins, bareboat-in, or commercially) vessels for other entities
Euronav announced Q4 2021 results during the first week of February 2022. What did EURN management have to say on the tanker market?
-
EURN management thought the tanker market had found a trough in Q3 2021.
-
Things were looking up for Q4 2021, then Omicron Covid-19 variant showed up, and things went downhill again.
-
EURN management are an optimistic bunch (will delve into this more shortly) and suggest the recovery has just been delayed. Main argument seems to be the Demand-Supply balance
a. Experts e.g. IEA (International Energy Agency) think the oil demand will increase by about 4 MM bpd. EURN projects needing 30 VLCCs/MM bpd
b. Supply side is much tighter. Maybe 50 VLCCs over the next two years.
c. Oil inventories (or do they mean Strategic Petroleum Reserves?) are below 5-year averages -
EURN management are concerned about the “illicit market” - this involves about 60-80 VLCCs involved a dangerous trade. I am guessing trade involving blacklisted countries e.g. Iran, N.Korea,etc. The suggestion is the “illicit market” preempts the orderly recycling of older tankers, among other things. With older tankers, there is also compliance aspects.
-
EURN have made some accounting-related changes. The biggest one involves depreciation. EURN used to depreciate their vessels straightline over 20 years (zero scrap). Starting in 2022, the company will employ a 4-year rolling window starting with $390/LDT for 2022.
Okay, back to the “optimismic bunch” comment. During the Q&A session, someone on the management team suggested that with the Supply & Demand fleet imbalance, and the EEXI (Energy Efficiency Existing Ships Index) plus CII (Carbon Intensity Index) requirements that come into play in 2023, the
tanker market could see multi-year high tanker rates. This was last seen in the tanker sector in the period 2004-2008. Hmm? EURN management really think the VLCC market is going from $12.5K daily to some high rate (Not specifically stated, I would guess, at least $40K daily)? I don’t see that visibility just yet. If it occurs in Q4, will that count as a good prediction? I have seen recent VLCC offers of low $30Ks for one-year deals.
If EURN management really believe the trend is multi-year, what are they giving up if they fix more of their VLCC fleet? (Currently, only 2 VLCCs are on time charters). There is a casino slots version of “Let’s make a Deal!” and in the Bonus round, the game gives one an option, a fixed amount (say 1200c) or the “Mystery Briefcase” prize. With only 2 VLCCs fixed, it seems like in 2021, EURN management are opted for the “Mystery Briefcase” prize each time.
https://static.seekingalpha.com/uploads/sa_presentations/737…
On the plus side, EURN have a lot of untapped credit facilities (over $500M), so the company is in reasonable shape in a prolonged down market.
No EURN position,
HohumYNWA