DNB Markets believes most market signs are pointing to continued healthy earnings for chemical tankers this year.
The Norwegian investment bank said contract renewals should continue to be carried out at higher rates as the potential for clean tanker swing tonnage to move into chemical trades lessens.
It argues that domestic tanker owner and terminals operator Odfjell still has momentum behind it in negotiating contracts of affreightment, despite somewhat softer renewals than expected at the end of 2024.
Odfjell pushed up prices 26% on average in the fourth quarter, compared with rival Stolt-Nielsen (29.8%).
Management said a meaningful portion of its contract portfolio “is up for full renegotiations in 2023”.
DNB Markets said: “We believe European Union [Russian oil import] embargo effects should support the company’s spot market exposure (54% of Q4 volumes), as the MR market is starting to strengthen again following the EU embargo.”
It is raising its 2023 Ebitda forecast for Odfjell by 6% to $483m to reflect the fourth-quarter renewals and first-quarter guidance.
The company’s tankers should produce Ebidta of $474m, up from the previous estimate of $445m.
This should support a “meaningful dividend” for Odfjell’s shareholders of about NOK 16 ($1.58) per share for 2023 — around 17% of the current market cap.
MR clean tanker rates in the Atlantic and Pacific have increased by $18,000 per day to $42,000 and $39,000 per day respectively since the EU’s 5 February Russian product ban.
“We see further upside as Europe is still having to replace 1m barrels per day of pre-embargo Russian oil product — driving tonne-mile demand and thus likely ... abating swing tonnage going forward,” the DNB analysts said.
Possible downsides include slower global economic growth reducing demand for chemical products, they noted.
There could also be more investment in new tankers, which have an inferior return on capital compared with terminals.
On the upside, there could be increased tonne-mile demand due to the rapid expansion of US chemical facilities.
DNB is predicting Ebitda for Odfjell of $456m for 2024 and $436m in 2025 — 15% above the Bloomberg analyst consensus for 2023 and 12% above for 2024.
The owner has refinanced five vessels “at attractive terms” in the period, reducing their break-even by $3,100 per day.
