EURONAV signalled the long-anticipated tanker market recovery had extended into the first quarter, with earnings even stronger than the bumper final months of 2019 as it reported its highest quarterly profits in more than a decade. 

However, chief executive Hugo de Stoop attributed falls in spot rates this week to the outbreak of the coronavirus in China, which he said would have a “short-term negative” impact on the crude tanker sector.

Sixty per cent of the tanker owner and operator’s 38 very large crude carriers were chartered at rates around $90,000 daily in the first quarter, and suezmaxes at $57,000 daily, he said in a conference call today.

“Rates have softened, but are still at decent levels around $45,000 per day for VLCCs,” he said.

“The sentiment has shifted for the moment, much because of the outbreak of a respiratory virus, the coronavirus, in China. The full macroeconomic impact is still being assessed at the moment.”

The New York-listed tanker owner reported a $160.8m net profit for the fourth quarter of 2019 on $355m in revenue. Euronav reported a $22m loss for the third quarter, and a $38.5m loss in April-through-June. 

The positive fourth-quarter results meant “the prospects for a sustainable cyclical upturn remain in place”, Mr de Stoop said.

Euronav VLCCs trading in the Tankers International pool earned $67,700 daily over the past three months of 2019, compared with an average $35,900 for the year. Suezmax earnings were $41,800 daily, 60% higher than the 2019 average of $26,000.

Market rates peaked as high as $220,000 daily for VLCCs last October, ending a protracted earnings slump driven by an oversupply of tankers that outpaced demand and depressed rates for several years. The earnings recovery propelled Euronav to overall profit in 2019, with a final-year results showing the company $118.9m in the black on $932.4m in revenues.

Crude tanker rates made stratospheric gains from October after US sanctions on two tanker units owned by China’s Cosco removed tonnage from trading just as scrubber retrofits on some tankers ahead of new fuel regulations curbed availability coincided with a seasonal uplift in demand.

“With continued limited contracting of new vessels, an order book at 25-year low and fleet expansion capital being rationed, the prospects for a sustainable cyclical upturn remain in place,” Mr de Stoop said.

Euronav outlined why it was positive on supply-demand fundamentals on the conference call. The company estimates some 42 new VLCCs would be delivered over 2020, while oil demand growth was forecast at 1.2m barrels per day by the International Energy Agency. This equated to demand for an additional 36 VLCCs to meet these additional shipments, the company said, without outlining its methodology.

Euronav estimated 120 VLCCs would be removed from the global trading fleet over an annualised basis in 2020. This included VLCCs used for floating storage, the entire Iranian fleet which is now subject to US trading sanctions, and those tankers temporarily out of service for an average of 35 days to have scrubbers retrofitted.

In addition to this, 28 VLCCs turn 20 this year, requiring special surveys to continue trading, and therefore might become scrapping candidates. The current orderbook was at 64, the conference call presentation outlined, citing Clarkson shipbrokers.

Management also discussed the likely return to trading of some 26 Cosco tankers currently idled by US sanctions. The vessels form part of Cosco’s overall fleet of 49 VLCCs and 25 suezmax tankers, and remain at anchor off Malaysia or China since the US blackban in September, imposed for breaching unilateral sanctions on Iran.

“It's highly likely their return will coincide with phase one of the US China trade deal that  was announced recently, meaning some of these vessels will be absorbed into this trade accord,” head of investor relations Brian Gallagher said.

China has agreed to buy $18.5bn in energy products, including oil, refined products, liquefied gas and coal, under the Phase One trade deal.

Mr de Stoop also cited recent sales of secondhand VLCCs at prices higher than newbuildings to illustrate positive market sentiment.

“VLCCS are being exchanged at $107 million and you compare that to $90 million that you can get at the shipyard 14 months down the road,” he said.

“That's $40,000 per day of profit above your opex, to $70,000 time charter equivalent, that you need to print on average for 14 months to justify that price. I think those prices are probably exacerbated by the excitement [of the last months of 2019].”

Euronav used its ultra-large crude carrier Oceania to hedge its physical exposure to the market for very low sulphur fuel oil, buying as much as 400,000 tonnes of the marine fuel and storing it off Singapore.

The fuel meets half the company’s needs for compliant fuel for 2020, and was purchased well below the current market price, the Euronav statement said. Management confirmed it will be kept for its own use.

However there are strong signals Euronav may divert from a long-held strategy not to install scrubbers on tankers. Scrubber-fitted VLCCs using high-sulphur fuel oil are currently earning substantial premiums over tankers using higher-cost compliant VLSFO.

“The fuel procurement strategy implemented so far has provided Euronav adequate protection against higher fuel prices and a high degree of optionality going forward regarding fuel strategies,” the statement said. 

“This includes the potential to install scrubber technology. Management will continue to closely monitor fuel market dynamics and update stakeholders when necessary.”