Clean tanker demand showing signs of strength for winter: Ardmore

Houston — A drop in clean tanker demand from an early second quarter peak looks to have bottomed out, with signs emerging of a strong upcoming winter market, Ardmore Shipping said July 28.

Volatility in the wake of the coronavirus pandemic supported stronger time charter equivalent earnings in the second quarter, CEO Anthony Gurnee said in the company's second quarter earnings call.

Ardmore announced an average TCE rate of $21,256/day for the second quarter compared to the $19,307/day average during the first quarter.

The 10% increase in TCE earnings was due in part to the massive freight spike in late April when the 38,000 mt US Gulf Coast-Brazil run peaked at $73.52/mt April 23, the highest level assessed by S&P Global Platts since the route's launch in August 2014. Heightened demand for clean tankers to act as floating storage for petroleum products subsided in May, however. And USGC-loading freight fell as exports tapered off, with countries in North and South America going into lockdown.

However, with countries showing signs of reopening in July, the USGC market saw an uptick in freight as export demand increased. Freight in the 38,000 mt USGC-Brazil route climbed to $37.29/mt July 21, having increased 66% from July 1 when freight was assessed at $22.38/mt.

Shipowners are optimistic that the return of petroleum product demand in North and South America could keep freight strong into the latter half of the year. Mexican gasoline demand, for instance, is expected to rise to 755,000 b/d in December from 550,000 b/d in May, according to S&P Global Platts Analytics.

"The charter market is playing out as expected in reaction to underlying macroeconomic and oil market conditions, with the earlier spikes in rates followed by lows in recent weeks, and now with signals emerging that we are coming off a bottom," Gurnee said in the company's July 28 release. "The oil market itself remains in turmoil; inventory levels remain high, global oil consumption is recovering to differing degrees across geographies and oil production is set to increase in August under the existing OPEC+ agreement."

Growth opportunity

Ardmore announced the addition of two ships into the company's existing fleet of 25 product and chemical tankers, to be delivered later in the third quarter. The company's release said the acquisition of a 50,093 DWT 2010-built Medium Range tanker was made on July 21 at a purchase price of $16.7 million, to be delivered in late August. Additionally, the company agreed to charter-in a 47,981 DWT 201-built MR for one year at a rate of approximately $13,400/day, plus a one-year extension option, to be delivered in September 2020.

Gurnee said the purchased MR, which has already completed required surveys and ballast water treatment system installation, will lower the fleet's net income breakeven rate to $11,700/day, and the timing of the acquisition takes advantage of the current market weakness. Additionally, the inclusion of two additional ships in time for the more active winter season could allow the company to take full advantage of the higher-expected earnings.