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Euronav benefits from outstanding large tanker market

Euronav benefits from outstanding large tanker market
Belgium and US dual-listed public limited company Euronav commands the only large tanker fleet within the Low Countries and has had a remarkable 2020 to date

The latest round of quarterly earnings shows the masterful command the Benelux region’s largest operator of tanker tonnage, Euronav, has on its destiny. Revenues in the first half of 2020 reached US$435M and the company produced a net profit of US$260M. It now has over US$1Bn in available liquidity of cash and revolving credit. VLCC spot rates in the TI pool averaged US$81,000/day in the second quarter of 2020. This has allowed the company to undertake a share buy-back scheme.

Euronav chief executive officer Hugo De Stoop said on an earnings call: “Tanker markets continued to deliver strong earnings throughout Q2 and into the early part of Q3. Floating storage requirements dissipated sooner than expected, pivoting the tanker market to a transition phase ahead of our prior forecast. With our sector low leverage, supported by over US$1Bn liquidity, Euronav is very well positioned to navigate challenges and seize opportunities as the market transitions to a lower crude supply and demand dynamic.”

As the biggest tanker operator in Benelux and one of the biggest independent tanker operators in the world, Euronav is heavily exposed to the VLCC market. It notes that there is disruption ahead in the form of VLCCs returning to the market from storage. The company estimates that of the 823 VLCCs in the fleet, 38 VLCCs are under the control of the Iranians and are out of the market for the foreseeable future; a further 22 VLCCs are in permanent storage. The company also classes another 43 VLCCs as semi-permanently out of the market due their association with trading with Venezuela.

Another 35 VLCCs are in the position of being able to swing back into the market at the end of their storage contracts. These may start returning to the market in October or November 2020, producing temporary over-supply disruption. Another element currently impacting the VLCC market is the port congestion in China, where an estimated 20 VLCCs are waiting to discharge at various ports, including a new terminal that was due to come online in mid-2020.

Finally, Euronav noted the as yet unresolved situation with the 20-strong Ocean Tankers fleet, which is caught up in the oil trader fraud investigation in Singapore.

Looking ahead, Mr De Stoop noted that the phasing out of the single-hull fleet and the introduction of double-hull VLCCs was effectively a renewal of the tanker fleet. Those vessels are now approaching 15 years old and will start to drop off the charterers list.

For many owners, this is the catalyst to sell, and so far this year Euronav has sold the Suezmax 2001-built Cap Diamant (US$20.8M) and the 2005-built VLCC TI Hellas (US$38.1M). At the moment, the average age of the Euronav fleet is eight years old, but the Suezmax portion has an average age of 11 years old.

Will the Belgium tanker operator be placing orders for new tonnage? Mr De Stoop noted that shipyards are desperate for new business but the restrictions on available designs are structural. Yards are offering LNG dual-fuel powered VLCCs but these carry a US$15M premium and will compete in the spot market with non-LNG powered vessels. Therefore, the investment needs to be backed with long-term contracts.

 

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