Product tanker companies have seen their share prices soar this year as “exploding” refining margins propel a rate recovery.
Clarksons Platou Securities sees the sector as the winner so far in 2022, with stocks up 48% on average following a 9% gain in the last week.
US-listed Scorpio Tankers added 15% in seven days after reporting better-than-expected first-quarter earnings and strong forward fixing for the second three months.
Analysts Frode Morkedal and Even Kolsgaard said cash flows are now so strong for product tanker companies that return of capital is back on the agenda, mainly in the form of stock repurchases, given remaining discounts to net asset value (NAV).
“Leading indicators such as refining margins continue to gap higher, indicating a strong need for more refined products supply,” they said. “Combined with lengthening voyage distances, the products sector looks primed to gain further, we argue.”
Shipbrokers report high interest in the sector. And Clarksons Platou tips ship values to continue firming, boosting NAVs.
Scorpio Tankers so far has clinched rates of $28,000 per day for the second quarter, for between 30% and 40% of available days.
This is almost a doubling from first-quarter levels, and well above the company’s cash break-even levels of around $17,000 per day.
Spot rates for both LR2s and MRs are assessed at around $40,000 per day.
“The outlook has not been better than since the spring of 2020,” Clarksons Platou said.
Patterns changing
“However, contrary to the temporary floating storage boom seen two years ago, this time around a change in the trade pattern is the driving force, with longer voyages resulting from Europe’s desire to replace Russian oil products,” Morkedal and Kolsgaard argued.
“Global refining margins have reached new highs last week, which is good news for the supply of product cargoes in coming months.”
Availability of refined products such as diesel is also tight in Asia-Pacific, not helped by lower Chinese product exports, which have pulled Indian products east instead of west recently, the investment bank reports.
“Product tanker flows, and thus freight rates, can be expected to follow arbitrage and price spreads, which by nature are quite volatile,” the analysts said. “That said, rates are expected to generally be at healthy levels given the tight market conditions, which could potentially surge with the onset of the summer driving season.”
