Euronav is bringing forward dry-dockings to try to counter "challenging" short-term rates for VLCCs and suezmaxes.

The New York and Brussels-listed tanker giant said nine vessels will enter shipyards earlier than planned, allowing 15% of the fleet to meet regulatory requirements during a depressed market.

It said the move will also give it the potential benefit of an improved freight rate market in the future.

Rates have fallen in the latter part of 2020 because of Opec+ production cuts, slower demand recovery due to Covid-19 and increasing vessel capacity, caused by a return from storage plays, Euronav added.

Scrap prices rising

But it called the prospect of increased VLCC scrapping next year a "specific bright spot" for the short-term outlook.

The pressure to recycle elderly ships is being driven by a recovery in VLCC scrap prices since May, up 18%, as steel prices have gained momentum.

"This indicates a potentially more buoyant backdrop for the recycling market into 2021," Euronav said.

"Should challenging freight rates persist during and beyond this winter period, then older tonnage logically should come under increasing pressure to recycle."

Shipowners have been holding back on demolition as they continued to trade older vessels during strong rates earlier this year.

But at the end of November, 25.4% of the fleet, or 210 VLCCs, was already 15 years or older.

Profit up in third quarter

These vessels consume 30% to 50% more fuel than their newer counterparts, delivering poorer environmental credentials and economics.

"It is encouraging that contracting of new tonnage remains suppressed by a range of environmental, regulatory and economic factors," the Belgian company said.

"Orderbook-to-fleet ratios are at 23-year lows for the VLCC sector, which bodes well for the medium term."

Asset prices have softened in the mid-age range, ie vessels of five to 10 years of age, but newer and vintage classes were more resilient over the past six months, it said.

Euronav's net profit in the third quarter was $46.2m, against a loss of $22.9m in the same period of 2019. Revenue grew to $241m, up from $175m a year earlier.

Ebitda of $138m was below consensus of $147m.

The company is paying $18.5m, or $0.09 per share, in cash dividends.

Euronav's VLCCs averaged rates of $42,000 per day, with suezmaxes at $23,500.

For the fourth quarter, it has 50% of the VLCC spot days fixed at $22,500 per day and 45% of the suezmaxes booked at $11,500 per day.

Norwegian investment bank Fearnleys was expecting around 50% of VLCC days covered, with rates forecast to be in the mid to high teens.

Fearnley said that, assuming $20,000 per day was achieved for VLCCs and $10,000 per day for suezmaxes, Ebitda would be between $60m and $70m in the fourth quarter, against consensus expectations of $91m.

Euronav chief executive Hugo De Stoop said: "A growing divide between rising short-term fleet supply and limited cargo availability, restricted by Opec+ production cuts and a slower demand recovery for crude, has impacted the sector negatively and is likely to continue throughout the seasonal winter period.

"With our sector low leverage, supported by over $1bn liquidity, Euronav is well positioned to navigate these challenges and potentially seize value-creative opportunities should they arise."

Storage play still in the red

During 2019, Euronav purchased 420,000 tonnes of IMO 2020-compliant fuel and stored it on one of its vessels, the 442,000-dwt ULCC Oceania (built 2003).

As oil prices dropped, the book value of this stash has dropped.

There are now 200,000 tonnes left on board, with a market-to-market value of minus $14m. But this is an improvement from minus $32m in the second quarter.

The company continues to conclude that no write-down is required at this time.

During the third quarter, Euronav converted two existing finance facilities — a $244m term loan and a $469m revolving credit facility — into a single $713m sustainable loan with specific targets to emission reduction.

This will refinance nine VLCCs and three suezmaxes and help fund four VLCC resales under construction at Daewoo Shipbuilding & Marine Engineering in South Korea.

"This is the first major financing of our fleet we have with specific emission requirements," Euronav said.

The loan includes terms with clear targets to reduce greenhouse gas emissions.

Interest could be reduced

Euronav revealed that interest will be cut by five basis points, or 0.05%, if compliance targets are met in the first 12 months.

In the third quarter, the company deviated its ships for an equivalent of more than 100 sailing days to carry out crew changes during the pandemic.

It warned that the market may become more challenging if demand for crude oil, and demand for transportation, continues to be negatively affected by Covid-19.

Looking further ahead, Euronav said oil will remain a core part of the energy mix, and crude tanker shipping will play a critical role in the wider energy transition.