Ardmore Shipping chief executive Anthony Gurnee says the recent rate spike in the Atlantic Basin for medium-range (MR) tankers shows the market “remains closely balanced,” despite rates hitting two-year lows during the third quarter.
The comments came after the New York-listed tanker owner delivered a $0.05 per share, which was in-line with analysts’ estimates.
MR rates in the Atlantic basin shot up 200% yesterday to around $25,000 per day yesterday on news of a fire on Colonial Pipeline, which supplies gasoline and heating oil to the US East Coast.
The boost comes on the potential for more cargo activity to supply gasoline and heating oil to the Atlantic Coast and alleviate supply gluts along the US Gulf Coast.
Gurnee says most of rate spike was the result of ships being put on subjects, with confirmed deals done at lower levels. But Gurnee says the uncertainty around the date at which the Colonial Pipeline will be back in service could mean that rates will stay strong for a while.
Media reports have said the pipeline could be up and running by as early as Saturday. But if the outage extends past the weekend, Gurnee says “all hell could break loose” if gasoline and heating oil prices spike on the East Coast and prices fall in the US Gulf Coast.
Only Jones Act vessels will be able to bring cargoes directly up from the US Gulf to the East Coast. Other MRs will have to move in many directions to catch the different trades that result from the length of the outage. Ardmore says it has two ships currently seeking cargoes in Northwest Europe.
“It’s not a sure thing it will be up and running by Saturday,” Gurnee said. If the outage persists, “it would be fantastic” for MRs.
“The bigger message is that the market has legs and has life and it doesn’t take a lot to move it,” Gurnee said.
Ardmore says for the fourth quarter it has booked 35% of revenue days for MR tankers, which are earnings $12,000 per day.
Gurnee says the weakness in MR rates is a function of refineries drawing down current high inventories of gasoline and diesel during their current maintenance season. But the International Energy Agency expects refinery runs to increase 5% by next January, resulting in more product for the seaborne trade.
The MR orderbook stands at 5.5% of the current fleet, which is the lowest in 20 years. Another 17 MRs are set for delivery this year, resulting in net fleet growth of 4.5% for the year, with another 2% growth for next year.
Gurnee says regulatory factors are also working in favour of the market. The entry-into-force of ballast water treatment systems next year “is likely to accelerate scrapping of older tonnage,” Gurnee said.
Likewise, the low-sulphur emissions requirement will require an increase in gasoil consumption, and could benefit MR ton-mile demand.
MR supply could also be limited by the closure and capacity reduction at South Korean shipyards. Similarly, Japanese shipyards may not have not have berths available for building ships until 2019.
Speaking about the low orderbook, “it does feel like a train wreck, but in a good way,” Gurnee said. With the closure of Korean yards and less financing available, “it’s all pointing to little or no ordering activity.”
