Diskussion om nordisk shipping

I have collected my latest thoughts on the product tanker market. I would love to hear thoughts from others about why you think product tanker rates have fallen and what you think of the market for the rest of 2023.

Markets have been speculating lately about how the upcoming ban on Russian clean products will affect product tanker markets and, in turn, the share prices of product tanker owners and operators. In the final months of 2022, product tanker rates surged, resulting in related stocks also performing well. Many market analysts expected rates would remain high into 2023 as the EU’s ban on Russian clean oil products is to come into effect on 5th Feb 2023. However, the Baltic Clean Tanker index shows rates have significantly retreated so far in 2023 (see below).

A possible explanation for the fall in product tanker rates is reduced European gasoline demand from a warmer-than-expected winter, in combination with Europe maximising Russian import volumes ahead of the February 5th deadline, importing 1m b/d so far in January, as reported by shipping news (https://www.hellenicshippingnews.com/product-tankers-and-diesel-supply-for-the-eu-what-to-expect/)

The ban, therefore, raises two questions, what will Russia do with its supply no longer flowing to Europe, and, where will Europe cover the lost supply from?

Investigating the first question, Bloomberg’s Javier Blas recently reported that Russia’s export capacity through 2022 was incredibly robust through 2022, with Blas highlighting that despite repeated EU sanctions, Russia exited 2022 pumping 11.2m b/d in total oil liquids, down just 1.6% (or 190k b/d) from pre-invasion levels. Russia has largely maintained its export levels by redirecting exports to destinations such as India. An interesting point of note is that some new destinations for Russian oil and oil products have seen their exports increase as some of the Russian product is sold back to Europe under the label of a “friendly” nation. Javier Blas suggests India might be doing this in the below tweet and also references the fact that Malaysian exports to China reached 3x Malaysia’s output capacity as evidence for relabelling. [1] [2]

With an EU ban on Russian clean products, Russia will need to find a new destination for its exports to Europe and will lose access to a fleet of European vessels. The evidence presented by Blas suggests that, in the long-run, Russia is likely to resolve these issues and maintain exports at near pre-war levels. However, in the short-run Russian exports of oil products may fall, negatively impacting the product tanker market and the supply of vessels transporting non-Russian oil products could increase, also bringing a negative impact. However, over a longer-term time horizon, the market is likely to re-establish equilibrium with Russian exports moved by non-European vessels.
The most significant effect over the longer term is a redirection of flows, leading to an increase in tonne miles as Russia ships its oil products to “friendly” nations such as India further afield. Europe will also need to source its oil products from further afield with the Russian tap firmly closed, also adding to the tonne mile effect. So where will Europe turn? The below report by SPGlobal shows that since Russia’s invasion of Ukraine, Europe has relied heavily on the US to supply increased volumes of oil products.

Europe still buying over quarter of diesel imports from Russia ahead of new curbs | S&P Global Commodity Insights.

However, Blas also reported last week that during the second week of January, the US didn’t release any oil from its SPR reserve, suggesting the US should not be looked to make up for the pending deficit. This suggests that Europe will have to go further afield in search of its oil products, increasing the tonne mile effect in the process. The big unknown will be whether Europe is willing to import relabelled Russian clean products, potentially via turkey, as suggested by Bloomberg, or North Africa as suggested by Shippingnews, or whether new flows will come from the gulf or elsewhere in Asia.

In addition to the tonne mile effect, the China reopening should also be positive, and MarineLink recently published an article suggesting that jet fuel trade could increase significantly as a result and end 2023 just 5-10% short of pre-pandemic levels, reflecting a year-on-year growth of 25-30% and as much as a 2% boost to the overall clean petroleum product’ volume. The China reopening will likely provide continued demand-side support, I have previously discussed this view in relation to the household savings rates.

Overall I see there being short-term uncertainties but expect that Russia’s supply will find a new home with time. I think the China reopening story is a large demand-side support, which should outweigh recession fears, and when you consider the tonne mile dynamics and low vessel supply growth, the market conditions should remain favourable. I also saw this view expressed recently by Poten & Partners (link below). However, there are also uncertainties, one of which is a question of how much of these dynamics are already priced into the market, and I think the big unknown is how strict Europe will be regarding relabelled Russian products.

I would love to hear alternative views and for people to share opinions, and even more so if they are contradictory.

For alle, der er interesseret i, hvordan Rusland flytter sin olie fra sine havne i Østersøen, er denne artikel fantastisk.

Det forklarer, hvordan Rusland bruger sine mindre Aframax-skibe til at laste større VLCC’er nær en spansk ø nær Marokko.

Hi everyone,

I thought I would update the thread following the Q4 earnings from Scorpio Tankers last week and ahead of the Q4 earnings from Hafnia next week.

To start, we can see the Baltic Clean Tanker Index has seen a significant move higher since my last post. (see below):

The rates have increased as markets understand the outcomes of the European embargo on Russian clean products. Scorpio Tankers provided valuable insight in its earnings call and Q4 presentations.

The most interesting takeaway for me was Scorpio’s demand outlook. Scorpio forecasts an increase in refined product tone mile demand of c. 11% for 2023E, driven by a 4.2% increase in absolute volume and a 7% increase in tonne miles.

The company cited continued demand strength with low global inventories and continued drawdowns of strategic petroleum reserves (both in the US and China), supporting the demand outlook. Scorpio Tankers also began to show us how the re-routing of Russian clean petroleum products (CPP) is happening, with Russia increasing its exports to Turkey by roughly 300,000 b/d following the embargo. S&P Global Commodity Insights highlighted that other destinations also include Algeria, Tunisia, Ghana and Saudi Arabia.

For perspective, that means Russian CPPs are moving from the baltic sea all the way around Europe to Turkey, North Africa, and The Gulf, rather than simply moving products from the baltic sea to Northern Europe. See the graphic from Scorpio’s Q4 2022 earnings presentation below.

The increase in tonne-miles will also be driven by Europe replacing its Russian supply from further afield. Prior to the embargo, Europe accumulated Russian CPPs increasing inventories which has held imports below pre-embargo levels, however, Scorpio’s management on its earnings call suggested Europe will need to return to its pre-embargo import levels of 1m b/d, sourcing its CPPs from the likes of the US, The Gulf, and India (more tonne miles).

There is also the factor of the China reopening. Any close followers of the oil market will have noticed prices have not moved much on the reopening story, against most analysts expectations (including mine). However, demand for oil products and particularly jet fuel, have been increasing. China has drawn on its strategic petroleum reserve and cushioned the market, as shown by the tweet below from Steno Research.

However, Scorpio also mentioned on its earnings call it expects the China reopening to positively impact the market through 2023, and as the months pass, markets should receive more data about how China is affecting the market.

The US SPR is also a part of this story as the Biden administration announced it will continue drawing down its SPR, with plans to release an additional 26m barrels before the end of August 2023, equating to approx 290,000 b/d. The signal is that US supply will be sustained. The past weeks have also seen crude and oil product inventories increase (from very low levels), which suggests the US can continue to supply Europe at least for the short-medium term.

Usually, inventory building can be a weakening demand signal for product tankers, however, given the low levels of these inventories, there is still a way to go before inventories come off of their 5-year average lower bound for this time of the year. You can find more information at the following link if interested: Weekly Petroleum Status Report Archives

The final focus for Scorpio’s market outlook was to reemphasise the constrained vessel supply outlook, which we have discussed many times previously in this thread and won’t focus on today.

To summarise, Scorpio Tankers gave us direction for how markets are reacting to the embargo and showcased how tonne miles can increase through redirected Russian CPP flows to Turkey and North Africa and European flows from the US, and The Gulf. The next key earnings call to look forward to will be from Hafnia, scheduled for 28th Feb.

Hafnia will also host an event with HC Andersen Capital where you can ask questions directly to its CEO Mikael Skov. The date is yet to be confirmed, but I will keep you updated.

Seneste opdatering fra Baltic Clean Tanker indekset. Priserne er faldet lidt. Finder markedet smuthuller, eller er det bare en pause?

Efter en markant spurt er Torm-aktien efterhånden fuldt værdisat, mener Danske Bank, der sænker sin anbefaling til “hold” fra “køb”. Kursmålet er derimod hævet med en femmer til 250 kr.

Selv om vi forbliver positive over for markedet for produkttank i 2023 og 2024, har vi svært ved at se yderligere kurspotentiale her og nu, skriver Danske Bank i notatet.

Torm-aktien er over det seneste år cirka firedoblet i værdi.

An interesting New York Times article highlighting how some tankers are evading sanctions.

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Product tanker fundamentals very different to weak container market

Last week Maersk, the leading global container shipping company, reported earnings disappointing the market as the CEO warned of a very tough freight rate environment driven by large oncoming supply, despite short to medium-term support from the conflict in the Red Sea.

However, the outlook for product tankers looks significantly different. Product tanker rates remain at historically very high levels, with a vastly different supply and demand outlook, driven by a low orderbook, relative to fleet, and favourable demand conditions. The following article explores the state of the product tanker and look at valuations.

Product tanker owners have started 2024 strong, with peer group average YTD returns >13%, as product tanker rates have risen sizeably in response to the conflict in the Red Sea. LR2 rates, in particular, have made headlines, as the rates for the largest product tanker vessels have soared from an average of around USD 40,000/day in 2023 (still historically high) to around USD 100,000/day.
The surge in rates has resulted from avoidance of the Red Sea, resulting in Houthi attacks on vessels in the region, which has seen product tanker volumes in the region drop by 46%, according to Clarksons Research. The vessels are redirecting via the Cape of Good Hope, South Africa, a diversion which adds up to 14 days to East-West transport. The result has been a supply shock upon a sector that was already operating at very high utilization, with Jefferies saying, “We estimate product capacity utilisation has risen from 92% pre-diversions to 95% based on the latest rerouting”, and thus the supply and demand imbalance has led rates higher.

Shipping is inherently volatile, and rates are even more variable with utilisation levels so high; therefore analysts must assess the longevity of strong markets. The Red Sea conflict itself draws large uncertainty, but with Israel’s Prime Minister Netanyahu opposing a ceasefire and unleashing fresh attacks in Rafah, Palestine, a resolution doesn’t appear imminent. Last week, Maersk’s CEO estimated that the conflict will continue for around three to twelve months as there is no obvious near-term solution to the conflict suggesting the supply shock is here to stay – for now at least. While the market will likely find efficiencies following the initial reaction, longer-term Red Sea avoidance will support higher fleet utilisation.

Source: Scorpio Tanker Q4 2023 earnings presentation

The supply side currently supports ongoing market tightness, as the current net orderbook remains very low, particularly net of expected scrapping. The product tanker orderbook stands at around 12% of the current fleet capacity, with very little oncoming supply in 2024, while 9% of the current fleet capacity consists of vessels over 20-years old, the age where typically greater levels of scrapping occur. The net orderbook is therefore low, but its also constrained for 3-years+. Shipyard capacity is highly limited, with yard backlogs until around 2027, as high container and LNG orders have filled capacity. Therefore, even if/once orders increase, additional vessels cannot reach the market until 2027 and beyond.

Product tanker owners have historically increased orders during strong markets. However, this time, uncertainty surrounding the future availability of green fuels clouds the investment decision. Environmental regulations are leading to more duel fuel capable orders, however, the future availability of fuels such as methanol, or LNG is as currently still uncertain, reducing the attractiveness of a long-lived asset expected to operate for 20-25+ years. The environmental regulations themselves, are also due to reduce available supply by driving slower vessel speeds to reduce emissions, further locking up vessel supply.

Source: Torm (Investor Presentation 8 January 2024)

Source: Scorpio Tankers Q4 2023 earnings presentation


On the demand side, Fearnley’s projects product tanker volumes to hit all-time-highs this year, driven by refinery expansions increasing ton-miles (including diversions around the COGH), and robust oil demand, particularly for refined products supported by historically low on-land inventories. The IEA also projects global oil demand growth of approx. in 2024, 1.2m b/d 2024 (a little over 1%), with global oil supply growth of 1.5m b/d. Towards 2030, the IEA expects oil demand to increase by 3.2mb/d, with India as the leading driver of growth, responsible for an increase of 1.2mb/d of the total projected 3.2mb/d. Refinery dislocations are also driving ton mile growth as falling refinery capacity in Europe and Australia and increasing capacity in Asia and the Middle East, support ongoing ton mile demand growth (See graphs below).

Source: Torm Q3 2023 earnings presentation

Source: Scorpio Tankers Q4 2023 earnings presentation


With share prices rising significantly, it’s important to understand how shares are priced. Historically, product tanker shares have been priced relative to their net asset value (NAV), understood as the value of their vessels minus debt plus cash. Simply put, product tanker owners have historically been priced relative to the market value of their net assets (Gross Asset Value – debt + cash = NAV) with a small premium or discount depending on market outlooks and company-specific factors. This differs to most companies which are where earnings multiples are a larger factor. The difference in valuation style is largely due to the volatility in shipping relative to many other companies.
Looking at the self-reported NAV of TORM and HAFNIA from their Q3 reports, we see that despite recent share price developments, they are still more or less valued in relation to the NAV (not adjusting for asset values, which have trended slightly higher since Q3 reporting dates).


Note: Market values from 16/02/2024

However, if market conditions will be more stable, as a result of supply and demand conditions, and can be supported for the medium to longer-term a multiple expansion may be justified. For perspective, during the last boom/bust product tanker cycle in 2008, the orderbook was above 80% of the existing fleet capacity, relative to 12% today. While NAV will likely provide an anchor to valuations multiples greater cash flow certainty could justify greater multiples, particularly in relation to the broader market.
Looking at a EV/EBITDA and P/E (analyst consensus) multiples we see forward EV/EBITDA multiples of 5.3x and 5.8x 2024E and 2025E, and P/E multiples of 6.1x and 6.8x 2024E & 2025E. Relative to other industries, this is very low, with the S&P trading at a forward PE of approx. 20x. The volatility in shipping remains a factor and a 20x P/E would likely be unjustified, however, given the margin strength, balance sheet strength, and cash flow generation, a stable earnings outlook could justify a positive multiple revaluation.

Product tanker peer group

Strong shareholder returns are also projected for the coming years looking at consensus analyst estimates. The peer group average dividend yield estimates for 2024, 2025 are 8.5% and 8.7% respectively, however, with some companies preferring share buybacks to dividends, Hafnia and TORM, who have preferred dividends in recent years provide the best proxy. Consensus analyst dividend yield estimates TORM for 2024E and 2025E are 13.0% and 13.0% for Hafnia, and 16.6%, 16.1%, for TORM. The dividend yield estimates show analyst beliefs for ongoing strong earnings forward to at least 2025 and sustained high dividend payout ratios.

Overall the product tanker market is structurally very different to the container market. The product tanker market’s medium-term outlook supports increasing demand driven by oil demand growth, refinery dislocation, and ongoing geopolitical tensions, while the supply side is supported by limited supply growth until at least 2027, further supported by old vessel scrapping projections. The major risk investors must understand is the geopolitical conditions underpinning the market, a factor that can change rapidly, and in ways highly difficult to forecast. It will also be important to understand how the orderbook develops and if scrapping of older vessels also develops as projected.

Disclaimer: HC Andersen Capital receives payment from TORM and Hafnia for a digitalIR/corporate visibility subscription agreement./ Philip Coombes 16:40 16/02/2024. The following article is not a recommendation to buy, sell, not to buy, or not to sell, and author Philip Coombes does not own shares in any of the companies mentioned in the article.


Container vessel orderbook dynamics
• LHS: Container orderbook overview, peaking at around 30% of existing fleet capacity.
• RHS: Container delivery schedules shows oncoming supply heavily weighted towards 2024

Source: Gersemi Asset Management.


Source: Braemar markets

Product tanker vessel orderbook dynamics
• LHS: Product tanker orderbook overview, currently at around 11% or existing capacity.
• RHS: Product tanker delivery schedules shows limited oncoming supply in 2024, and an ageing fleet with a sizeable replacement wall approaching towards 2029.


Source: NORDEN: Investor presentation FY 2023;


Source: Hafnia: Investor Presentation Q3 2023

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Jeg faldt over disse to artikler, som gav mig anledning til at spørge - investorer i shipping - om der er nogen der har tænkt over konsekvenserne af den grønne omstilling i relation til shipping?

Vil det få en effekt på shippingaktier og olieprisen ?