The product tanker market is poised for more massive rate fluctuations as vessel employment approaches 100%, Torm chief executive Jacob Meldgaard believes.
He told TradeWinds that the elevated rates seen in 2022 and 2023 will continue.
But the CEO cannot predict whether there will be another spike, or if rates will carry on at similar levels, or even fall on occasions.
“I think there’s a lot of moving parts to that equation,” Meldgaard said.
The interesting thing is that the sector is right in the eye of current geopolitical storms, the boss explained.
“I don’t think you could have really anticipated as many events that are driving changes to the underlying freight patterns as we see,” he added.
On the Russian situation, Meldgaard told TradeWinds: “I think last year a lot of people were a little like, well, isn’t the sanctions just a temporary thing? You know, wouldn’t the EU like logically to reset and re-engage?
“I think my personal opinion is that that scenario is further out, ie we will have rerouting of Russian volumes for longer, not for shorter,” the CEO said.
In the Red Sea, about 60% of clean products shipments have diverted away.
“But you still had so far this year 40% of charterers and owners deciding to pass through the Red Sea in the transit into Europe. Let’s see what happens,” he added.
Some trades will be dropped
Torm has noted the product market moving towards full utilisation due to this rerouting around South Africa.
So will there be a shortage of vessels?
“A shortage means that a certain trade will not appear and the price will be strong,” Melgaard explained.
“We are operating in a very strong environment where small changes in demand and supply lead to high volatility. For instance, earlier in January and February we fixed $100,000 per day on an LR2,” the CEO said. “But now earnings are 60% lower.”
“And I think that kind of volatility is just harder when you are operating in an environment where you’re close to absolute utilisation. Because small swings in supply and demand will lead to huge swings in the freight rate that you can command for your asset. So I think that will continue,” he argued.
The shipowner logged a record Ebitda of $848m for 2023.
“This is a special day for me. It’s the best result in the history of the company,” Meldgaard said.
“It’s been a fun year. It’s such a volatile market,” he added.
Asked how the company would use cash other than for dividends, the CEO replied: “Well, of course, we need to be open-minded.
“I think in general the tack that we have had, ie that we share the rewards with our shareholders, that is what I expect. We are pleased to continue on that,” he added.
