Evercore ISI equity analyst Jonathan Chappell, who kicked off the day-long meeting, with an optimistic view of improved economic prospects for 2017- 2018, what he termed “a positive demand driver for all segments in shipping.” Supply of vessels coming into the market is a big concern, with Chappell talking about “capacity that was ordered during the big surge of 2015” likely to weigh on the market, especially in the first half of 2017, and mid-year, as OPEC production cuts kicked in.
Further out, he saw “fleet growth decelerating in 2018, there has been some discipline on ordering...or forced discipline due to the lack of financing.”
For product tankers, which he called “the most disappointing sector of 2016”, the analyst saw an outlook that was a little bit better later in 2017 - “a tale of two halves”. However there was a caution that, as bloated product inventories continue to ebb “there is a big disconnect between end user oil demand and product tanker ton miles.”
Going forward, Chappell likes the product tanker area; he told the audience, “We might be a little early with this call - we do think that this (segment) has the best prospects for the back half of 2017 and 2018”.
A mid-morning oil market panel moderated by CR Weber’s George Los augmented the broader overview, with panelist Bob Burke, ceo of Ridgebury Tankers, echoing many of Chappell’s views including concern about newbuild deliveries at a time of limited scrapping.
He pointed out the falling rates in the product tanker sector have the salubrious effect of creating more arbitrage opportunities; he added that new sulphur requirements for fuels will lead to less efficient trades, more cargoes in multiple directions, providing a further fillip for owners of product tankers.
Talking about markets generally, Burke said that it’s a good time to be a buyer likening tanker purchases to those of “call options”, saying, “right now options are cheap.” But he did go on to list the reasons for the attractive pricing - pessimism about market prospects and lack of capital for shipping projects.
Later the day, Burke, talked about company strategy on the of buying at the right time and then selling after the economic wave turns upward; he hinted at the path forward saying, “we will probably be expanding at some time during this next cycle”.
In an after lunch panel, Lois Zabrocky, the ceo of International Seaways - the international tanker spin-off of restructured Overseas Shipholding Group, told attendees: “at some point in the near future it’s going to be the right time to invest in the sector….we think that it’s good timing…we’re at the right place…look for us, as we move through the cycle…we are going to take opportunities.” Importantly, both Ridgebury, private equity backed, and International Seaways, now with a public listing, have ample warchests of capital to make opportune purchases.
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