Drewry’s Crude Tanker Equity Index has been on an upward trajectory (YTD: up 7.4%) since the beginning of the year after surging 96.3% in 2022 on the back of favourable market fundamentals. However, the index came under pressure from the beginning of March (19.2%) despite increased vessel earnings across vessel classes as the banking woes of the US and Europe put sell-side pressure on the stock market. As a result, tanker shipping companies face the heat of negative sentiments of potential economic slowdown.

Drewry’s Product Tanker Equity Index also gained 18.6% until the third week of April after surging nearly threefold in 2022. However, the index has been on a decline since then (22.7%) despite favourable market fundamentals, as macroeconomic headwinds and fear of economic slowdown are acting as a drag on stock prices of product tanker companies. Overall, the Drewry Product Tanker Equity index declined 8.3% YTD.

At the time of publication, two companies, covered by DMFR, have not reported their 1Q23 financials. However, we still believe that our sample (consisting of five companies) still provides a comprehensive assessment of underlying industry trends. On average TCE revenues jumped 234% YoY during the quarter. Average EBITDA of tanker companies jumped nearly tenfold as operating expenses increased slower than the growth in topline. Teekay Tankers was the top performer with a nearly twelvefold jump in EBITDA as mid-size vessels, which benefitted the most from the shift in trade patterns, accounts for nearly 95% of the fleet, while Ardmore Shipping, was at the bottom with nearly 187% increase in the EBITDA.

Europe’s move to reduce energy dependence on Russia over the past 14 months proved a boon for the tanker shipping market. Additionally, enforcing a price cap on Russian crude oil and refined petroleum products (in December 2022 and February 2023) increased the long-haul trade of crude and products from Russian ports. The country has become the largest supplier of crude to China and India (more than 90% of Russian crude exports); other destinations in Asia, Africa and Latin America are at much longer distance than Russia-Europe. The shift in patterns of Russian crude export has accelerated the pace of recovery in the crude tanker market, and crude carriers, especially mid-sized vessel, are enjoying elevated earnings.

Newbuild and second-hand prices were on an uptrend from March 2022 across vessel classes, and mid-sized carriers benefitted the most from the changing market dynamics. Asset price of a five-yearold Suezmax and Aframax moved up 44.2% to USD 68.5mn and 37.8% to USD 62mn, respectively. Prices of five year old LR2 and LR1 increased 27.7% and 38%, respectively during the same period. The rise in prices of relatively older vessels is much higher; for instance, the asset price of a 15-year LR2 surged 113.5% to USD 39.5mn and that of a 15-year Aframax jumped 91.4% to 33.5mn over the same period. Asset prices were largely stable in recent months despite a fall in stock prices, indicating a favourable outlook for the tanker market despite macroeconomic headwinds in the near term.
Source: Drewry Maritime Financial Research