Odfjell sees trouble coming

BEHIND THE CURTAIN

RESULTS • ODFJELL REPORTED ITS BEST FIGURES FOR FOUR YEARS IN 2020 DESPITE THE PANDEMIC’S DISRUPTIONS, BUT THE FOURTH QUARTER HINTS AT TROUBLE TO COME

ODFJELL ACHIEVED REVENUES of $1.01bn in 2020, up 6 per cent on the 2019 figure, with EBITDA rising 34 per cent to $289.5m on the back of lower voyage, timecharter and operating costs. Net profit came in at $27.9m compared to a loss of $36.6m in 2019. All the improvement came from Odfjell’s chemical tanker operations, with its tank terminal division once more posting comparatively stable results.

“Despite the pandemic, we have delivered stronger results and performed on important operational and safety measures,” says Odfjell CEO Kristian Mørch. “We have concluded the largest fleet renewal programme in our history and taken important steps by further streamlining our terminal division.”

While Odfjell performed well over the year as a whole, the fourth quarter showed some weaknesses that are expected to persist into 2021. Although chemical demand remained firm, the chemical tanker market was weak, with more offhire days and higher fuel costs also eating into profitability. A major factor has been weakness in the clean petroleum product (CPP) tanker sector, attracting swing tonnage back into easy chemicals, which is expected to continue to affect the spot market. Odfjell is sticking to its decision not to renew contracts of affreightment (COAs) at unsustainable prices, though, and says it achieved an overall 3 per cent increase in COA rates in the fourth quarter.

FLEET DEVELOPMENTS Odfjell has continued to build its fleet towards its target of 100 ships and during the fourth quarter established two new pools for coated chemical tankers. The MR pool will include six vessels from Navig8 Chemical Tankers, one from Transportation Recovery Fund (TRF) and six from Odfjell. The Handy pool will have six vessels from TRF. “The establishment of these pools adds further flexibility to our operational platform and adds economies of scale by adding incremental revenues with marginal added costs,” Odfjell states.

Navig8’s six vessels arrived under Odfjell’s commercial management towards the end of the fourth quarter, while two TRF ships joined the fleet near the end of the year. The remaining five TRF tankers were due to join Odfjell by the end of the first quarter 2021. During the fourth quarter Odfjell also concluded its newbuilding programme with the delivery of the 38,000-dwt Bow Excellence, a stainless steel tanker. Some changes have been made to timechartered tonnage, adding some capacity and extending some existing deals. Three 25,700-dwt stainless steel newbuildings are due from Asakawa in 2022 and 2023 under timecharters but Odfjell now has no owned tonnage on order.

In the market as a whole, the appetite for new contracting remains low. Owners are, not surprisingly, lacking confidence in demand until the Covid-19 pandemic eases, while they are also unsure about the choice of propulsion systems to meet future emissions restrictions. Those factors are also limiting access to capital in light of increased residual risk.

The global chemical tanker orderbook now stands at 5.6 per cent of the existing fleet and, with expected retirements of older vessels, Odfjell is projecting annual fleet growth of just 1 per cent over the next three

years. It also forecasts annual tanker demand growth of 3 per cent over that period, pointing to strong fundamentals for the core chemical tanker market.

MARKET OUTLOOK Odfjell notes that global chemical demand continued to recover during the fourth quarter. However, chemical tanker demand levelled off after the resurgence of Covid-19 lockdowns and the destocking of inventories built up earlier in the year. Odfjell also notes an increasing regional difference, with the western hemisphere being most affected by these developments, while Asian demand has escalated.

China in particular has re-established its role as a motor for demand growth, reporting annualised GDP growth of 6.5 per cent in the fourth quarter. China accounts for 28 per cent of seaborne imports of liquid chemicals and now seems to be back on its pre-Covid growth trajectory, while also stimulating economic activity and chemical demand in the wider Asian region.

Odfjell is optimistic that chemical demand in the western hemisphere will pick up as vaccine programmes are rolled out and lockdown measures eased, providing further stimuli to demand growth in the second half of the year.

Downside risk for the chemical tanker sector comes primarily from the role of swing tonnage. The CPP markets are “challenging”, Odfjell says, with excess vessel supply as a result of weak crude tanker markets, ongoing inventory destocking and continuing weak demand for some products, notably jet fuel. However, the product tanker orderbook is also relatively small and, if there is post-Covid recovery this year, the market should tighten. TERMINAL ACTIVITY Odfjell Terminals generated EBITDA of $6.6m in the fourth quarter, down from $7.8m in the prior period, and EBITDA of $30.0m for 2020 as a whole, up from $26.7m in 2019. Underlying demand for storage capacity remains strong, with average commercial occupancy of 97 per cent at the end of the year. Activity levels remained relatively stable, with the fourth quarter seeing 6 per cent fewer handlings but throughput 16 per cent higher than in the third quarter.

Odfjell Terminals’ results were only slightly affected by a hydraulic oil fire in the Power Pack room at Odfjell Terminals Houston on 11 December; although the fire was quickly extinguished with no injuries or loss of containment, certain operational systems were damaged and regular operations had to be suspended until late January.

In December, Odfjell acquired Lindsay Goldberg’s indirect 24.5 per cent shareholding in Odfjell Terminals Korea for $19m, which is expected to have a positive effect on Odfjell’s results while also creating a simple and more efficient governance structure. Lindsay Goldberg is looking to complete its exit process by divesting its interest in the Tianjin terminal in China and Odfjell says it is also evaluating its position.

Meanwhile, Odfjell Terminals Houston is closing in on a final investment decision on a 32,000-m³ expansion of specialty chemicals storage, due to come onstream in 2022. Further expansion plans are in place and may go ahead, contingent on long-term commitments from customers. In Antwerp, Noord Natie Odfjell has finalised plans for its next phase of expansion, which will add 35,000 m³ of storage capacity and is due to start operations in 2022. www.odfjell.com

NEW POOLS HAVE EXPANDED THE ODFJELL FLEET

WITHOUT THE EXPENSE OF NEWBUILDINGS AND THE

COMPANY IS POSITIONING ITSELF TO TAKE ADVANTAGE