Tanker company Euronav has reported a drop in first quarter profits. New VLCC orders and deliveries promise a challenging year for the tanker market.
For the first quarter of 2017 the Company had a net profit of 34.3 mill. $ (first quarter 2016: 113.5 mill. $). Proportionate EBIT[ds_preview]DA (a non-IFRS measure) for the same period was 106.1 mill. $ (first quarter 2016: 185.0 mill. $). Revenue declined from 214.9 mill. $ in Q1 2016 to 164.2 mill. $.
CEO Paddy Rodgers said: »Q1 2017 was a confirmation of our thesis: short term challenges but a positive medium structure building for the tanker sector. Asset prices look to be bottoming out in our view confirmed by emerging buying interest from industrial players. However, short term outlook retains a cautious tone with nearly a quarter of the large tanker order book scheduled for delivery during Q2 2017 and newbuilding contract activity picking up short term albeit only in the VLCC sector.«
USA exports promise more ton miles
Euronav sees the market continue to build a positive medium term structure as demand for crude oil remains robust. The recently adjusted IEA forecast for 2017 at 1.3 mill bpd growth still drives a requirement equivalent to an additional 35-45 VLCCs of shipping demand for 2017 alone depending on sourcing.
Ton miles retains an important dynamism within large crude tanker markets and the first quarter saw further establishment of a key trend, namely USA exports. The level of crude oil exports grew substantially during the first quarter of 2017 to average 758,000 barrels per day (versus 417,000 per day in Q1 2016 (source: IEA)). It could be the start of a more structural development of a trade lane from the USA to China.
Asset prices continue to adjust to the new structure of restricted financing. 2016 saw average tanker values fall by approximately 25%. Euronav believes that asset values are approaching a low point supported by reduced immediate newbuilding slots capacity at the yards and less speculative buyers.
Orders and deliveries challenge tanker market
The ordering of 15 new VLCCs during the first quarter is a »disappointing development« given order flow was zero over the last four months of 2016, Euronav says.
The biggest challenge facing the tanker market at present seems to be the concentration of tanker deliveries. The first quarter saw 27 VLCC equivalents delivered to the global fleet (based on VLCC and Suezmax deliveries only) a number which will be repeated during the second quarter. Absorption of these new, un-vetted vessels will occur during a seasonally weak period. Euronav took delivery of two VLCCs (acquired as resales of contract) in January.
Inventory levels are expected to reduce toward more normalized levels during the rest of 2017. This is a supportive backdrop for tanker markets as global oil supply is anticipated to rise driven by USA shale, increased production in core producing nations and reduction in outages in areas such as Nigeria and Libya.
