New York-listed product tanker owner Ardmore Shipping is predicting a rise in rates in the fourth quarter in a market characterised by volatility.
Jefferies said it had recently hosted meetings with the Ireland-based company's executives. The executives told the US investment bank that earnings were starting to recover as refinery use rises, trading activity increases and supply growth flattens.
MR rates had been under pressure in recent weeks at less than $10,000 per day, primarily due to the recent hurricanes and tropical storms that temporarily disrupted oil production and refinery utilisation in the US Gulf, said Jefferies analysts Randy Giveans, Christopher Robertson and Chadd Tribo.
"However, rates have risen this week to more than $13,000 per day as US refinery runs are rising and exports are increasing," they added.
Tonne-mile tonic
Ardmore believes that refined products market volatility, increased trading and refinery "dislocations" should lead to increased tonne-mile demand.
This is despite global crude and refined product demand being under pressure due to Covid-19.
Management noted that gasoline and diesel demand are recovering at a faster pace than expected, although appetite for jet fuel is lagging, Jefferies said.
Norwegian investment bank Fearnley Securities assessed MR rates in the Atlantic as up 9% at just over $10,000 per day compared to Tuesday, but down 33% from last month.
UK shipbroker Howe Robinson Partners said the week began with very little work outstanding for LR1s heading to Asia, and a list which offers upwards of 30 open LR1s up to 20 October.
List looking long
"Whilst there has been a clear out of prompt tonnage over the last two weeks, the lack of activity and volume of vessels fixed for short hauls means that the 5 to 15 October list looks long and there are a number of ships ballasting in from Southeast Asia," the company added.
Tanker owners are trying to drive an improvement in LR1 rates on the back of MR improvements. But Howe Robinson said: "We think this is unlikely looking at the list."
Brokers have reported overall LR2 earnings falling 15% this week to $17,000 per day, due to weaker Mediterranean-Far East markets. Refinery demand is said to be lacklustre, partly because of seasonal maintenance but also weak margins due to excess diesel fuel.
Ardmore on Tuesday announced a new share repurchase programme worth up to $30m.
"While deleveraging the balance sheet and positioning the company to be able to make accretive asset purchases remain top priorities, management decided it should also take advantage of shares trading below 50% of net asset value (NAV) for an extended period of time," Jefferies said.
Secondhand interest
The investment bank is tipping Ardmore to buy back between $5m and $10m in the fourth quarter.
Jefferies has a buy rating on the stock and a price target of $7.50, against a $3.20 closing price in New York on Tuesday, up more than 6% from Monday.
After recently adding a secondhand MR tanker for $17m, Ardmore is keen on being able to make similar acquisitions in a period of depressed asset prices, Jefferies revealed.
But the shipowner believes the sale-and-purchase market will be limited due to a wide bid-ask range and reduced capital availability.
