Odfjell stayed in the red in the second quarter of the year and warned that results will get worse before they get better amid “challenging” conditions for its chemical tankers.
The Oslo-listed owner and manager of 92 vessels in the sector reported on Thursday a net loss of $7.8m in the three months to the end of June, compared with a $30.9m profit in the same period of 2020.
Results improved from the prior quarter, as the Norwegian company had posted an even deeper loss of $15.6m in the first three months of the year.
However, Odfjell chief executive Kristian Morch said seasonal cyclicality suggests profitability will deteriorate again in the third quarter.
“The third quarter is usually a seasonally slow quarter, which together with a continued challenging CPP [clean products] market may result in a slightly weaker 3Q21 [third quarter of 2021] compared to 2Q21," he said.
The Bergen-based company said it maintained its “fundamentally positive view” on chemical tankers, while acknowledging that near-term prospects remain unpredictable due to Covid-19 and ongoing market weakness.
Pandemic uncertainty
Despite forecasts for global economic growth of 4.9% next year, the pandemic’s latest mutation is “an important factor for uncertainty”, the company said in its earnings release.
“Although Covid-19-related lockdowns make the recovery in crude and CPP markets unpredictable, there are expectations that demand will recover during 2H21 [the second half of 2021],” Odfjell said.
“This will lead to stronger CPP markets and reduce supply pressure in the chemical tanker market [in] the next six to nine months.”
In an earnings call, Morch suggested underlying demand for chemical products remains strong despite supply-chain disruptions.
“There is a very, very strong demand,” he added. “The lack of inventory and supply is driving the disruption to the market for the moment.”
US chemical producers have been forced to reduce exports in recent months, with their inventories below normal levels following February's Texas freeze.
Odfjell managed to achieve better rates when renewing contracts of affreightment (COAs) in the second quarter, according to the quarterly report. But total volumes were still negatively affected by the US disruptions and Covid-related lockdowns.
“It’s quite good to know it’s not a demand driven disruption,” Morch said. “There is a positive trend for all our COA rates.”
The company’s fleet recorded average time-charter equivalent earnings of $20,143 per day between April and June, versus the estimated break-even level of $21,300 per day for the whole of 2021.
Chief financial officer Terje Iversen said Odfjell is aiming to reduce the break-even rate to between $18,000 and $19,500 per day through debt reduction efforts.
“We still have a way to go before we reach our target,” he admitted.
Earlier this month, Odfjell sold the last two gas carriers in its fleet to Oslo-listed peer BW Epic Kosan for cash and shares.
The company said it can reduce debt by $20m on a pro-forma basis by disposing of the 9,000-cbm Bow Guardian and Bow Gallant (both built 2008).
“We have improved out equity ratio and balance sheet through the transaction,” Iversen said.
