Odfjell eyes upturn

SMOOTH SAILING

RESULTS • ODFJELL CONSIDERS MARKET FUNDAMENTALS POINT TO FIRMING RATES OVER THE COURSE OF THIS YEAR AND IS SANGUINE ABOUT THE IMPACT OF IMO 2020

ODFJELL TANKERS ACHIEVED revenues of $850.8m in 2018, a 1 per cent improvement over the 2017 figure, but EBITDA fell 13 per cent to $108.7m. Kristian Mørch, CEO of parent Odfjell SE, stated in his presentation of the company’s annual results that the fourth quarter of 2018 “concluded a challenging year for chemical tankers”.

The company is, though, confident that the market has turned a corner, with evidence later in the year that rates were moving in the right direction and indications that the first quarter of 2019 would continue that trend. “This is consistent with our view that the market has healthy fundamentals,” Mørch continued. “We do expect continued volatility but we believe our markets have passed the bottom.”

That belief is founded on several indicators. Rising bunker costs through 2018, while hedged to some extent, raised voyage costs but, following a fall in bunker prices late in the fourth quarter, Odfjell now expects lower costs during 2019. It is also noticeable that swing tonnage was moving back into the clean products (CPP) market during the fourth quarter, bringing the chemical market back towards a sustainable balance.

Trade volumes are also taking an optimistic turn. Palm oil exports increased from September 2018 onwards, with a consequent impact on freight rates in the fourth quarter, and methanol exports from the US and the Middle East have had a positive impact on long-haul employment. Odfjell notes that the escalating trade war prompted by the US has in fact led to incremental demand and new trade lanes opening up.

For example, while the US exported 212m tonnes of styrene to China in 2017, that figure dropped to 128m tonnes in 2018; at the same time US exports to the Middle East increased from 9m tonnes to 117m tonnes, and Middle East exports to China increased by 81m tonnes. The net result of these changes was a 7 per cent increase in tonne-mile employment.

Indeed, Odfjell says, the concern is not so much on the impact on trade volumes but the impact of trade and tariff wars on the overall global economy.

CAREFUL WITH THE ORDERS There are promising signs on the vessel supply side, too. Contracting of newbuildings has declined steadily since a peak in mid-2014 and, Odfjell says, “interest remains low”. Indeed, it adds, 60 per cent of the orders placed over the past two years have been for replacement tonnage or are in the over-50,000 dwt or under-18,000-dwt sectors.

The current orderbook stands at some 8 per cent of the current trading fleet, which works out at a very manageable 2.6 per cent annual fleet growth through to end-2021. That is without taking account of the potential for additional scrapping – some 17 per cent of the core chemical tanker fleet was built between 1995 and 2000 and of an age that means demolition is being considered – as well as the removal of swing tonnage from the core chemical and vegoil trades.

Odfjell also considers there is the potential that, following the introduction of the International Maritime Organisation’s (IMO) sulphur cap in marine fuels on 1 January 2020, there may be an increase in slow steaming to ameliorate the effects of higher bunker fuel prices.

While the full impact of those new rules has yet to be felt, Odfjell notes that the initial price spread between marine gasoil and very low-sulphur fuel oil has been around $130/tonne so far in 2019. It anticipates that Odfjell Tankers will use compliant fuel on the basis that “price spreads do not look alarming”. HCB www.odfjell.com

ODFJELL TANKERS IS WELL PLACED TO TAKE ADVANTAGE

OF A MARKET THAT IS MOVING BACK INTO BALANCE AS NEW