Euronav: ‘Tankers in early stages of multi-year cycle of stronger freight rates’

Euronav: ‘Tankers in early stages of multi-year cycle of stronger freight rates’

Antwerp: Paddy Rodgers, ceo of tanker giant Euronav, is in an understandably jovial mood when Maritime CEO comes knocking. A brilliantly timed cheap fleet build up was followed by a listing in New York this January as VLCC rates rallied, which has seen Rodgers’ own stock rise. A week ago Rodgers unveiled Euronav’s best quarterly results since 2008. What’s more, he is adamant that the current uptick in tanker fortunes is just the start of a prolonged rate boom.

“We believe we are in the early stages of a multi-year cycle of stronger freight rates driven by several supportive factors,” Rodgers says.

Vessel supply is limited over the next two years, he reckons, pointing to Clarksons data that estimates only 31 net VLCCs will be added to the global fleet in the next two years and only 15 suezmaxes equating to less than 2.5% of net additions in each of the next two years.

This comes at a time when oil demand is likely to jump. “With the oil price 50% lower than the summer of 2014 this should transmit over time into strong demand,” Rodgers says, picking up on the IEA’s figures that show 1m barrels per day (bpd) growth for 2015 and 1.2m bpd in 2016. A million extra barrels would require 45 new VLCCs, Rodgers says. “Given the limited supply of new ships this provides strong support for our outlook,” he adds.

The ton-mile effect is also supportive to Rodgers’ sunny outlook. Tradelanes are changing. Asia is increasingly having to source oil from the Atlantic rather than the Middle East.

“To put this into context,” Rodgers says, “Arabian Gulf to China is 5,500 miles versus Latin American to China which is 11,500 miles.”

Rodgers started out at a lawyer in 1982 before joining CMB as its in-house counsel in 1989. He became CFO at Euronav in 1998 and CEO two years later.

Despite all this seemingly good news for the tanker sector, Rodgers is circumspect on adding more ships to his fleet. Indeed, at his quarterly results he beseeched fellow owners not to order new ships as that might upset the delicate supply/demand balance in the VLCC trades.

“We have no firm plans at present regarding our fleet as we have effectively done our shopping in 2013 and 2014 with the purchase of 19 VLCCs during that period in anticipation of strong freight rates that we now are experiencing,” Rodgers tells Maritime CEO.

“Our outlook is simple and disciplined,” says the former lawyer, “if we can add to our fleet by an accretive addition then we will closely consider it. However, it will have to mean acquiring assets at NAV or a discount to NAV and for the additional fleet to at least match or more likely reduce the breakeven cost of the enlarged fleet.”

It is this discipline that has seen Euronav become one of the top tanker tips for investors.

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