If a $14,000-per-day improvement from already-strong fourth-quarter rates does not excite you, maybe wait a few weeks.
That was the word from Scorpio Tankers president Robert Bugbee on Wednesday as he walked TradeWinds through the giant product tanker owner’s latest guidance on bookings in the current quarter.
Scorpio reported a time charter equivalent rate of nearly $72,300 per day for its LR2s, with 29% of days booked this quarter, up from an already robust $58,000 per day on voyages concluded in the fourth quarter.
While that number alone is eye-catching, Bugbee said it does not reflect any benefit of the 5 February ban on Russian clean products cargoes by the European Union.
In fact, he explained, it is quite the opposite.
“Europe has been taking product cargoes from Russia at levels we haven’t seen for quite a while, trying to take inasmuch as they can ahead of the ban. Certainly that’s not to the benefit of the product market,” he said, citing the short-haul nature of the trade.
“The other thing that’s been holding the market back is extreme cold weather in the US that has caused refinery outages and limited the ability to export products. That’s going to take another week or two to recover.
“Taking these two headwinds together, for us it’s extraordinary that the product market remains so high. It provides a very solid platform for the rest of the quarter and beyond.”
Considering that Scorpio’s fleetwide financial break-even rate for its 113 product tankers is about $17,000 a day, the New York-listed shipowner is continuing to print money at a dizzying pace.
The increase for MRs was smaller in the update announced earlier on Wednesday. Rates increased from $43,000 per day last quarter to $46,000 per day in 2023, for 24% of revenue days.
For each $10,000 increase in daily TCE rates across the fleet, Scorpio lifts annual cash flow by about $410m, management said on Monday during a virtual investor session with Capital Link.
Scorpio is hearing increasing demands that it should start to enlarge its $0.10 per share quarterly dividend, including on Monday's call.
But Bugbee reiterated in his remarks to TradeWinds that this is not a top priority in the near term.
“We are going to continue to use the majority of the cash flow to pay down debt, which is falling quickly,” he said.
“We are going to continue to opportunistically buy back stock, which is trading so far below NAV [net asset value]. These are the best uses of capital. Much better than increasing dividends or buying vessels in the water or ordering ships that aren’t making any money and delivering in the future.”
