On #tankers: Let us help our audience on why we are long tankers. Thread...
1) A VLCC vessel has high operating leverage, allowing an investor to earn a very high ROIC, if you hit the cycle right.
1) A VLCC vessel has high operating leverage, allowing an investor to earn a very high ROIC, if you hit the cycle right.
In fact, a VLCC vessel may earn a multiple of its invested capital in one good year. See below our illustration for $EURN...
For that however, you need to understand the cycle! Which is why we developed a proprietary, bottom-up tanker market model over the years. Here a snapshot of our output mask...(it is a detailed model, believe us).
Let's be clear. Rates move on the margin as do oil prices. There are always too many or too little vessels! Worse, it is a very sentimental process as two humans set rates. But the model allows to see trends & develop sensitivities around certain assumptions. So it does help...
Let us now share some insight why we are convinced this cycle has legs.
a) on demand: assume seaborne trade of some 40 mb/d in 2019 decreases by 9% to about 36.5 mb/d on average for the year 2020. Assume this results in 302 million deadweight tons of vessel demand (m dwt).
a) on demand: assume seaborne trade of some 40 mb/d in 2019 decreases by 9% to about 36.5 mb/d on average for the year 2020. Assume this results in 302 million deadweight tons of vessel demand (m dwt).
b) on supply: assume we will have to get 550 million barrels of oil in floating storage to manage this supply overhang (just trust us on this)! This results in 320 m dwt of supply (active fleet).
A + B results in a capacity utilisation of some 94.7%. This is huge. In the past decade, we had sub 90% capacity utilisation (but way higher stock prices than today).
When we know capacity utilisation, we can calculate a theoretic dayrate. Kind of nice! But remember, it is a sentimental process bw humans, not a machine setting the rate. So it remains a model.
To help you decide for yourself, we ran a sensitivity table for different demand & supply drivers. This way, you can decide for yourself in what outcome you believe...kind of nice!
You can now study for yourself what will happen (and is already happening) in tanker rates & what it will likely mean for the earnings of your favorite tanker company (and assuming your pick has exposure to the spot market)...enjoy!
Hint: $FRO $EURN $DHT
Hint: $FRO $EURN $DHT
And remember: we are running out of storage quickly, we mean very quickly (and despite some contrarian expert views on this channel :-)...
And don't forget to do YOUR OWN homework
