Okeanis Eco Tankers (OET) is predicting a big upswing for crude ships in 2021 as market fundamentals move into alignment behind the sector.
The Greek owner's chief operating officer Aristidis Alafouzos explained his thinking on a conference call with analysts after strong second-quarter results.
He said an accurate break-even figure is important when analysing the market.
Alafouzos prefers to focus on spot break-even levels, as a fleet-wide calculation "is a bit misleading" because the time charter-fleet carries a higher break-even but still generates cash particularly after a dramatic fall in Libor rates.
"The vast majority of our spot ships are cash generative," he said.
Oslo-listed OET is vocal in stressing its low break-even rates compared to its peers.
Plenty could be torched
And Alafouzos said: "If our ships are breaking even, that means the average tanker is burning cash, which will only catalyse scrapping."
For VLCCs, the company has identified 120 or so scrap candidates of more than 20 years of age up to 2023, against an orderbook of only 80 vessels.
“It is highly likely that the net fleet growth could be flat to negative from 2022 onwards,” Alafouzos said.
As the oil demand normalises after Covid-19 disruption, he added that the tanker market looks set to “tighten fundamentally within a year at the latest”.
“If the market stays weak throughout 2021, we can expect an acceleration of scrapping,” he said.
“We are particularly excited about the second half of 2021, where we expect a normalisation of oil demand and a record low orderbook to create a very strong tanker market.”
Alafouzos also said the company is cautious about the next couple of months as stock draws continue to impact on tanker demand, but the "silver lining is the orderbook and the scrapping we will see in a weak market".
He added: "We will continue paying out as much as we can to shareholders and hope that our aggressive dividend policy and operational performance are what we come to be known for."
It announced another big net profit for the second quarter — $37.1m — against a loss of $3.61m in the same period of 2019.
Revenue from the 17 ships was $81m, up from $19.5m, and first-half profit was $78.2m.
No cheap ship sales
Chief financial officer John Papaioannou said that assuming a downside spot rate scenario in 2021 for its VLCCs of $25,000 per day, suezmaxes at $20,000 and aframaxes at $17,000, OET would still generate net income of $35m — or $1.10 per share.
The company is committed to selling ships from next year if the price is right, in order to return value to shareholders.
Alafouzos said: "The first prerequisite for selling ships is strong asset values. In short, we will not sell ships in a weak asset value environment.
"We are very confident about the medium-term outlook for tankers and you can expect us to be very busy with asset disposals when we feel the time is right."
