A bullish Niels Stolt-Nielsen believes a resurgent chemical carrier sector is well insulated from recession and the ordering of new ships.
The chief executive of shipowner Stolt-Nielsen told analysts on a conference call: “Even if we had zero growth in global GDP, we will still have a healthy market.”
This is because of clean MR vessels leaving the chemicals sector and no significant number of new ships coming into the market.
“So we are quite bullish. Even if somebody starts ordering ships, or even if we start ordering ships, I think that we will have a healthy market,” the CEO said.
In fact, only a “total global meltdown” could wreck the recovery now, he argues.
“Historically, the demand for the movement of chemicals around the world has been pretty robust, even in recessions,” Stolt-Nielsen added.
“Inflation has risen sharply and remains elevated. There’s limited capacity within oil and gas, and a tightening labour market, high inflation — and rising interest rates could curb spending on goods and services and the risk of recession in certain markets is now material,” he believes.
“But again, [I] just point out that the flow of chemicals, at least historically, has been pretty robust, even during recessions. Well, we might be going into new territory,” the CEO admitted.
Stolt-Nielsen also said the company’s headline rise of 11.4% in contract of affreightment (COA) renewal rates in the third quarter was a little misleading.
The figure was lowered by a very big early extension of an existing deal entered into to reposition vessels, he explained.
Moving tankers from Europe
“We believe that the European market is going to be challenging because of the energy costs in Europe. So getting the ships from Europe out to the Far East or to the Middle East, we want to make certain that we have the business and we went out and secured that business long-term,” the CEO added.
Without that contract, the COA renewal rises for the quarter would have been in excess of 20%.
Group net profit in the third quarter was $74.7m, from revenue of $744m.
This is compared with earnings of $33.5m from an income of $581m a year ago.
Stolt-Nielsen said: “The good news is that you ain’t seen nothing yet.”
“The earnings improvement that you’ve seen so far in Stolt Tankers is mostly…from the spot rates,” he added. “The impact from the renewals that we have in the first and second quarter, it’s with a lag.”
Earnings coming down the track
Renewals usually start three or four months before the contract expires. “So it’s coming,” the CEO said.
The group’s chartering department tells him the company is well-positioned.
“We do expect to see some significant increases in the rates, but not only the rates but also the terms and conditions on the contract,” Stolt-Nielsen added.
“After having had a poor shipping market for such a long time, it’s not only the rates that you need to get up, but it’s the terms and conditions that needs to be tightened up so that we become more efficient as an industry,” he said.