For the three months ended 31 December 201[ds_preview]6, tanker company Euronav has reported a net profit of 50 mill. $ – 52% drop compared to the fourth quarter of 2015 with 104.9 mill. $. The company expects a number of challenges in 2017, but sees positive drivers in the medium term.
Paddy Rodgers, CEO of Euronav explained: »Euronav had an active Q4 resulting in a letter of award for our FSO joint venture for a five-year contract, refinancing over 400 mill. $ of company debt on better terms and duration plus executing a sale and leaseback on four vessels. This has further bolstered our already strong balance sheet and gives us the flexibility to navigate the tanker sector cycle from a position of strength. Tanker owner sentiment and behaviour continues to be relatively brittle despite medium-term positive market fundamentals. Freight rates in what historically is the strongest quarter in any calendar year – Q4 – were subdued.«
»Since November, however, record cargo volumes ahead of OPEC production cuts, caused by improving demand for crude, helped drive rates toward long-term Q4 averages in December. However, 2017 will, in our view, present a number of challenges: OPEC production cuts, peak delivery schedule of the order book, continued restricted access to finance and anemic owner confidence, which when combined, are all likely to produce a difficult rate environment for 2017«, Rodgers continued.
For the fourth quarter of 2016 the Company had a net profit of 50.0 mill. $ (fourth quarter 2015: 104.9 mill. $) or 0.32 $ per share (fourth quarter 2015: 0.66 $ per share). Proportionate EBITDA (a non-IFRS measure) for the same period was 130.1 mill. $ (fourth quarter 2015: 182.4 mill. $).
Euronav sees short-term challenges
According to Euronav the tanker market finds itself at an interesting intersection as medium and longer-term positives (restricted financing driving limited contracting, increased environmental regulation taking effect from 2017 add pressure to scrap, robust demand for crude) continue to build momentum but are likely to be overshadowed by a number of negative short- term factors driving the market during 2017 (OPEC production cuts, delivery of new vessels, limited scrapping, anemic owner sentiment).
Euronav sees a number of short-term factors dominating during 2017 before focus on a positive medium-term market structure can develop. In terms of short-term headwinds, firstly the OPEC-led production cuts will begin to impact during Q1 (mid to late January) and present a headwind for tanker markets until at least the summer months when long established seasonal trading patterns typically reduce demand.
Secondly, 2017 will see the peak of the order book delivery schedule with at least 40 VLCC equivalents (VLCC & Suezmax vessels expressed as VLCC capacity) expected to enter the global fleet in the first half of 2017 alone. Owner sentiment and behavior has been weak in the face of similar vessel delivery albeit at lower levels during the second half of 2016 suggesting potential freight rate pressure during this delivery period.
Thirdly, older tonnage is likely to remain and act as disruptive capacity in 2017 as pressure to scrap is neutralized to some extent by an uncertainty over approved ballast water and sulphur cap systems and an ability to defer direct application of the new environmental regulations starting in September 2017.
Lastly, continued restrictive access to financing for ship owners and anemic owner confidence are likely to combine all of these factors to produce a challenging freight rate environment for 2017.
