Product tanker newbuilding prices have huge room to climb amid expectations for a rising rate environment, Ardmore Shipping says.
New York-listed Ardmore ordered 14 newbuildings in its initial growth phase in addition to its second-hand acquisitions and today prices a new MR in South Korea in the $36m to $37m range.
“We're at an interesting point in the newbulding cycle as well because the orderbook is really quite low,” chief executive Tony Gurnee said.
“Meanwhile, the input costs for shipbuilding have been going up, and shipyards, at least in the recent couple of years, have seem to have found real discipline around pricing.”
He added in on the company’s second quarter conference call: “We think that when the market begins to move, there's significant upside in newbuilding prices.”
Gurnee recalled in the last upturn an MR newbuilding was priced at over $50m at a time shipyards had a lower cost base. For prompt delivery, a cheque of around $55m was required.
Gurnee said he was not predicting values would soon reach these levels again but was highlighting the “meaningful upside”.
Ardmore said there were today 172 product tankers, spanning 44 LRs and 128 MRs, on order, equal to 5.9% of fleet.
Its numbers project 108 new ships will be delivered in 2019, against the 35 to 40 likely to be scrapped.
Ardmore has now sold all of its older ships to assemble a fleet with an average age of just six.
Gurnee declined to discuss if further purchases were on the cards amid suggestions from Stifel analyst Ben Nolan the company had the cash to buy at least two modern MRs.
However, Gurnee believes the company is well positioned for an upturn around IMO 2020.
“We think we have a lot of juice already,” he told analysts. “We're 100% spot. We're significantly leveraged to the upside."
Gurnee noted if MR rates returned to the $25,000 per day level seen in 2015 earnings could run to $2.50 to $3 per share.
“And given where the stock price is today, we think that's a significant amount of upside,” he said.
