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Ardmore MR freight earnings triple as energy crisis deepens product tanker dislocations

Physical supply-demand dislocations in the oil products and clean tanker markets, coupled with global low product inventories amid an energy crisis driven by the Russia-Ukraine conflict tripled Ardmore Shipping’s time-charter equivalent earnings for Medium Range tankers so far in 2022.

We believe the strong product tanker market is being driven primarily by two factors,” Ardmore CEO Anthony Gurnee said during the company’s second-quarter earnings call. “Firstly, a multi-faceted energy crisis likely to persist for some time, with extreme price swings and supply issues for virtually all energy classes, low global energy inventories, and physical supply-demand dislocation for oil products driving ton-mile demand.

“And secondly, improving demand/supply fundamentals, most notably the ongoing recovery of oil demand—in particular jet fuel—and the combined effect of supply constraints at shipyards and ongoing scrapping,” Gurnee added.

The 45% of MR products tonnage fixed so far in Q3 resulted in earnings of $46,551/d, up 52.9% from $30,480/d in Q2. TCEs for tonnage fixed July 10-23 were indicated at $55,300/d, up 81.4% on the Q2 average TCE.

According to Gurnee, chemical tankers have been approaching similar levels on a capital-adjusted basis, with Q2 TCEs up 79% on Q1 and Q3 earnings for tonnage so far booked registering $32,921/d, up 122.4% on Q1, and 49.8% on Q2.
Spot rates outpace floating storage boom values

Ardmore has been able to rake in these profits with the company’s fleet-employment strategy of deliberately moving to 100% spot trading going into 2022 and 120% spot including the time charter-in tonnage of five units at an average TC-in rate of $12,600/d, as spot freight rates have far outpaced the gains seen during the Q2 2020 floating storage boom.

In the Americas, freight for benchmark MR routes from the US Gulf Coast to the Caribbean, Brazil, and Chile have surged 76.9%, 83.8%, and 69%, respectively, in Q2 over Q1, Platts data by S&P Global Commodity Insights showed.

So far, average rates for July 1-27 have inched up 1.2% to an average of $64.45/mt on the USGC-Brazil run and increased 4.5% to $75.98/mt on the USGC-Chile route, but earnings on the short-haul USGC-Caribbean trip have been ranging below long-haul TCEs, with spot rates declining 4.4% versus the Q2 average to $27.74/mt. Yet a recent avalanche of stems on the route has sent rates upward, with Platts assessing freight at $46.05/mt July 27, when rates on the long-haul USGC-Brazil and USGC-Chile routes settled at $78.72/mt and $94.74/mt. At these spot rates, the TCE for the short-haul USGC-Caribbean run has climbed to around $90,000/d, according to market sources.

Global slowdown tempers upward trajectory

Looking ahead, Ardmore believes that while the prospects of a global slowdown should temper expectations, there is growing consensus that the energy crisis will not be resolved anytime soon, making for a positive demand and supply outlook for product and chemical tankers.

According to the July International Energy Agency’s Oil Market Report, global oil demand is expected to climb by 1.7 million b/d in 2022 and 2.1 million b/d in 2023. Considering the ongoing trend of refinery dislocation with 8.9 million b/d of export refining capacity expected to come online in the next four years in the East of Suez markets and 5.9 million b/d of refinery closures in the mature markets in the US, Europe, Japan, and Australia, Ardmore expects clean tanker ton-mile demand to grow 3%-4% a year, based on Clarksons Shipping Intelligence Network data.

“The supply outlook for product and chemical tankers is also favorable, driven by a low order book and increased scrapping levels,” Ardmore CFO Paul Tivnan said during the call. With an estimated 2022 net fleet growth of 1.4% for product tankers and 1.1% for chemical tankers, incremental tonnage supply ranges well below demand growth.

According to S&P Global’s quarterly freight market snapshot, West of Suez MR rates are expected to come off slightly in Q3, but further increases are anticipated toward the latter part of the year, especially as the European sanctions deadline for the Russian barrels moves closer.
S&P Global analysts expect MR and Long Range freight rates out of the Middle East to see some pressure amid increased regional tonnage supply, with fewer ballasters to make their way from West to East as rates come off.

Ardmore had 27 Medium Range tankers in operation, including three chartered-in ships, with 21 MR tankers ranging from 45,000 dwt to 49,999 dwt and six Eco-Design IMO 2 product/chemical tankers ranging from 25,000 dwt to 37,800 dwt. The company has also been commercially managing three of Carl Büttner’s 24,000 dwt chemical tankers since March 1, 2021.
Source: Platts

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