Euronav falls to 4Q loss: Update
Published date: 04 February 2021
Share:
Adds CEO comments throughout
Belgium-based shipowner Euronav made a loss in the fourth quarter last year after weak demand weighed on dirty-tanker spot rates. Chief executive Hugo De Stoop told Argus that he does not expect the firm to return to profit until at least the second half of this year.
Euronav swung to $58.7mn loss in the fourth quarter from a $154.2mn profit a year earlier. Still, record profit in last year's first and second quarters, driven to a large extent by a sudden boom in demand for floating crude storage, meant the company's full-year earnings rose to $477.3mn in 2020 from $112.2mn in 2019.
Average spot rates for Euronav's very large crude carrier (VLCC) fleet were $20,500/d on a time charter equivalent (TCE) basis in October-December last year, down from $61,700/d in the same period of 2019 and an average of $54,600/d for 2020 as a whole. Suezmax rates followed a similar trajectory, with fourth-quarter TCE earnings less than one-third of the average for 2020 as a whole.
The company attributed the rate decline to weak crude consumption arising from global restrictions in place to combat Covid-19, along with export cuts from Opec+ members, both of which led to oversupply in the tanker market. Euronav expects these factors to persist into the second half of 2021, and said any return to pre-Covid demand relies on the successful roll-out of vaccination programmes globally.
"We believe that the first half of this year will remain pretty low in terms of freight rates and therefore the results should remain below breakeven so we will probably record a loss [for this period]," De Stoop said. The second half of this year is less certain, he said, but the third quarter is "unlikely to be much better" taking into account seasonal factors, and the fourth quarter "maybe more positive".
Looking further forward, De Stoop said he expects a tighter supply and demand balance to lead to a recovery in freight rates in 2022. Uncertainty over both the pandemic and propulsion technologies prevented the rush of vessel orders that might typically have taken place when freight rates were very high in the first half of 2020. As a result, an unusually low number of ships are on order.
VLCC ordering activity has picked up in recent months. But although this might shorten the higher rate cycle, De Stoop said he does not expect increased vessel supply to prevent a recovery next year, as he thinks conditions are favourable for a pick-up in scrapping activity. De Stoop highlighted that many shipowners will be facing a decision about whether to invest $3mn-5mn, including the cost of a ballast water treatment system, in their older vessels to pass classification society surveys, many of which were delayed in 2020 because of Covid-19. Considering low freight rates, some may prefer to recycle the ships and receive "$18mn-19mn" at current scrap metal prices, he said.
New ships, new options
Euronav took delivery of two new VLCCs in January, and a further two are due in March. De Stoop confirmed that the company plans to look for clean product cargoes for the first voyage of these ships — as is common practice — and may be able to sign a deal with a trading firm that includes a storage option, which has become increasingly prevalent in the current market.
Traders ask for a time charter with transportation and storage options, particularly for products such as jet fuel, gasoil and diesel that have seen demand severely affected by the pandemic, he said. "That is a new option that is available to us," he said, although he added that deals are typically negotiated close to the delivery of the ship and can be complex because the vessel size is atypical for the oil products market.
Euronav also purchased two Suezmaxes that are under construction at South Korea's Daehan shipyard. These are scheduled to be delivered in January 2022, and have the structural notation to use LNG fuel. Euronav is working with the shipyard to make the tankers ready to use ammonia fuel in the future.
By Will Collins