Virus affects clean tankers 'least directly': Scorpio

Product tanker rates have found support from increased exports out of Asia amid the coronavirus outbreak, as regional refineries accumulated surpluses because of lower domestic demand, New York-listed product tanker owner Scorpio Tankers said.

Product tanker rates fell sharply in mid-January as the coronavirus outbreak began, but have trended upward since the start of February. For example, the South Korean-US west coast 35,000t clean tanker rate fell by 21pc to $33.57/metric tonne between 16 January and 11 February, according to Argus assessments, but since then has climbed by 9pc to $36.63/t.

"The product market itself is one of the shipping markets that is least directly affected by what's going on in China," Scorpio chief executive Robert Bugbee said.

The coronavirus has had a much larger impact on crude tankers, as rates on key very large crude carrier (VLCC) routes have fallen by more than half since the outbreak began.

Long range 2 (LR2) tankers are earning roughly $26,000/d, long range 1 (LR1) tankers are earning roughly $19,000/d, and medium range (MR) tankers are earning roughly $16,000/d, Scorpio said. These earnings are in line with the shipowner's earnings in the fourth quarter of 2019.

Scorpio operates a fleet of 138 product tankers, comprised of 21 Handymaxes, 63 MRs, 12 LR1s, and 42 LR2s.

Going forward, Scorpio expects product tanker rates to rise as the coronavirus dissipates and Chinese import demand returns to normal levels. Moreover, the drop in newbuilding activity amid the uncertainty from the coronavirus outbreak will also likely provide support to clean tanker rates by limiting the deliveries of new tonnage supply, Scorpio said.

IMO 2020 effects

The surplus of stored marine fuel compliant with the International Maritime Organization (IMO) 0.5pc sulphur cap ahead of the 1 January 2020 transition muted shipping demand for compliant fuels so far, Scorpio said, but demand will rise as those stocks dissipate.

Scorpio has installed scrubbers on 55 of its tankers as of 18 February and plans to install an additional 25 in the first quarter, 19 in the second quarter, 14 in the third quarter and four in the fourth quarter. The company has experienced delays for scrubber installations because of the reduced pace of work at Chinese shipyards amid the coronavirus outbreak.

Scorpio's scrubber-fitted LR2s saved $5,300/d on fuel in January, compared to non-scrubber fitted vessels. LR1s with scrubbers saved $5,400/d and MRs saved $2,800/d.

Scorpio reported a fourth quarter net income of $12mn on revenues of $221.6mn, compared with a net loss of $17.7mn of revenues of $167.5mn in the same period in 2018.

By Michael Connolly