The analysts almost had him. Irrepressible Scorpio Tankers president Robert Bugbee found himself mouthing the word “weaker” in reference to current spot rates in the product tanker market before he stopped in his tracks.
“You guys have even got me using the word ‘weaker’,” he said to a pack of researchers taking part in the quarterly earnings call on Tuesday.
“It’s hard to describe this market as ‘weak’. It’s very strong.”
Bugbee was getting pressed because the bookings Scorpio revealed for the third quarter to date — $44,000 per day for LR2s, $34,000 per day for MRs and $25,000 per day for handymaxes — came in between 8% and 17% lower than in the second quarter.
So the management team for the 106-tanker behemoth was left to point out that lower doesn’t mean low, and weaker doesn’t mean weak.
The blended average of $36,000 per day for the full fleet compares with $26,000 per day at this time last year. It is also a long way north of Scorpio’s new and improved daily operating breakeven of $12,500 per day.
“Your actual headline rate is $10,000 above last year,” Bugbee said. “It’s not relevant to us how it compares to June. It’s relevant to its own season. And the operating costs are $8,000 to $9,000 lower.
“So you’ve got a strong differential from last year in cash flow and the actual market. We’ve never had a springboard that was this high.”
The shipowner also reminded that the third quarter is usually the weakest in the product market, which tends to heat up as temperatures cool in the fourth quarter.
“We expect seasonality to return in our favour,” Scorpio head of corporate development James Doyle said.
It was the type of back-and-forth on an earnings call that happens when there are no real problems evident.
And that was the case again after Scorpio beat Wall Street earnings estimates, pumped up its stock buyback programme to $400m, and sliced net debt below $700m from $1.4bn a year ago.
Still, at least one equity analyst had expected more out of the current quarter and moved to adjust his numbers.
Jefferies’ Omar Nokta reduced his third-quarter earnings expectations to $2.64 per share from $3.09, saying he had expected LR2s to return more than $50,000 per day.
Analyst Frode Morkedal of Clarksons Securities wondered whether an increasing number of crude carriers “cleaning up” to carry products might be keeping a lid on LR2s.
“It’s probably enough to explain why LR2s are at $40,000 and not $60,000,” Morkedal said on the call.
Bugbee answered: “We’re really happy with our $40,000 per day. We hope the VLCC market gets stronger sometime.”
Scorpio shares traded up 4% to $77.46 in morning activity on the New York Stock Exchange.
