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Hafnia Tankers CEO: Rate slide came earlier than expected

The product tanker boom was expected to turn around sooner or later. But it happened a bit earlier than expected, explains Hafnia Tankers CEO Mikael Skov. However, the chief executive believes that the market will be "fundamentally healthy" again by as early as next year.

Photo: PR-foto

It seemed only a matter of time before the tanker market would lose some of its steam.

After a year and a half characterized by the low oil price and soaring trade activity, it was expected that the stockpiles would eventually reach capacity, and that the tanker carriers would then have less to do.

We probably expected that the decline in the spot market would have emerged a bit later than it did"

Mikael Skov, CEO, Hafnia Tankers
That it happened already in the first half of 2016, however, came as a bit of a surprise at Hafnia Tankers, where CEO Mikael Skov had not anticipated sliding rates until the third quarter.

"We probably expected that the decline in the spot market would have emerged a bit later than it did. But we still believe that this is a temporary scenario and that things will improve by the end of the year," he says, explaining that things are pointing in the right direction.

"It's difficult to be pleased with the second quarter. But that being said, we finished the period with a fairly sound income, and our costs remain low, and it looks like the market bottomed out in August and July," the CEO tells ShippingWatch.

Many new ships

The Danish product tanker carrier recently published an interim report showing a reduced profit for the first half of the year, though the bottom line remained positive at USD 17.2 million against USD 26.7 million for the same period last year.

The lower result is mainly attributed to the decline in the second quarter. While the year got off to a good start, the spring and summer brought a slide in freight rates as stockpiles reached capacity and trade cooled off.

Mikael Skov also points to the fact that a large number of incoming newbuildings has put a damper on the market. Even though demand has increased, the fleet has grown even further, and this has sent the rates down.

Hafnia Tankers' average daily rate for the biggest LR1 vessels came to USD 20,750 in the first six months of the year, compared to an average of USD 27,072 for the full year 2015.

"New ships are continuously entering the market, and there are in fact also more ships entering the market than can be covered by the basic consumption. As such, we need extraordinary trade activity, and when this declines a little, the rates follow suit. We've seen this happen in the second quarter and the beginning of the third quarter," says Mikael Skov.

Lower expectations

The lower rates have made Hafnia Tankers lower its internal full-year expectations, and the carrier now projects a reduced profit.

The same happened at competitor Torm, which recently slashed its full-year guidance in half in relation to the publication of its half-year results.

In spite of this development, Mikael Skov is pleased to note that demand for gasoline, aviation fuel and other products is actually increasing.

"Where other segments are struggling with reduced demand combined with an oversupply, we're still seeing the demand for oil products increase steadily year after year," he says.

New boom on the horizon

However, analysts seem to disagree on where the product tanker market is headed.

While some project challenging times ahead for tanker carriers as the world shifts increasingly to green energy, others believe that a new tanker boom could be underway already next year, as the balance between supply and demand looks set to improve.

We probably expected that the decline in the spot market would have emerged a bit later than it did"

Mikael Skov, CEO, Hafnia Tankers
Mikael Skov falls in the latter category. He points to a fundamentally healthy demand. And the West African market is slowly taking off, while the winter season is traditionally also strong for the product tanker carriers, as more oil is used for heating.

"When we're done taking delivery of these ships during 2017, we'll be looking at a market with a steadily increasing demand. There will be a supply of vessels which will likely be less than the percentage growth in demand," says Mikael Skov, noting that the market is becoming "fundamentally healthy."

"We're don't see a bulging orderbook going forward. Rather, we're looking at one of the smalles one in recent memory. So things are moving in the right direction, though we have to get through this period, where we've had an influx of new vessels of 4-5 percent annually," says the CEO.

As is the case for Torm, Hafnia Tankers plans to seek a listing on the New York Stock Exchange. But this does not look set to happen anytime soon, as the pace-setting tanker shares are currently trading at less than the companies' net asset values.

Tanker market puts pressure on Hafnia Tankers' earnings

Hafnia Tankers is equipped to handle high oil price

Hafnia Tankers made USD 77 million in 2015

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