Crude tankers to lift Q4 numbers

Hedging IMO 2020 bunker exposure

Stockpiling set in motion

Crude tankers should make Q4 better
Q3 EBITDA came in at SEK -18m vs. ABGSCe at SEK -17m, with product tanker rates of USD 11.1kpd (-19% y-o-y and -2% q-o-q) and Suez rates of USD 14.2kpd (19% y-o-y and 8% q-o-q). Q4’18 bookings indicate a slight strengthening in the product tanker space, with 47% of bookings at USD 11.5kpd, while Suez rates have firmed significantly, with 61% booked at USD 21.6kpd. Although this is still below the USD 25kpd CBE, Suez rates averaged ~USD 32kpd last week and we expect the market to continue to improve through 2019. With Suez rates having significantly firmed in Q4, we increase our Q4’18 rate estimate to USD 23kpd (USD 16kpd), leading us to increase Q4’18 EBITDA to SEK 34m.

IMO 2020 positioning
Concordia has opted to not install scrubbers on its fleet, choosing instead to hedge its fuel costs at a spread of USD 282/mt for its owned fleet and 2 additional MR tankers. The hedge will be for 50% of 2020 and 50% of H1’21 consumption. With the futures spread for this period currently at USD 333/mt, and our expectation that the spread will not fall below USD 300/mt during this period, we view this transaction positively. However, with the economics of the scrubbers currently demonstrating a short payback period, they represent a relatively stable investment opportunity.

Stockpiling set in motion
The EIA’s Short Term Energy Outlook has increased its estimates for a global stockbuild as increased crude supply from oil producers, i.e. Saudi Arabia, Russia, Canada and US, implies stronger crude production than consumption. On the back of this, tanker demand is expected to spike, in line with our hypothesis that 2019 will be an accelerated cycle with strong rate growth. However, product tankers tend to lag crude tankers, and as such we expect the rate appreciation for product tankers to come in H2’19, especially as IMO 2020 stimulates more oil product t
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