This increase was mainly due to the weaker product tanker market experienced in 2018. For example, DIS’ daily spot rate $10,798 in the full-year 2018 versus $12,026 in the full-year 2017.
The freight market hit historically low rates in the third quarter of last year but rebounded to profitable levels towards the end of 2018. Rates at the start of this year are showing clear signs of improvement relative to the previous year.
At the same time, 34.2% of DIS’ total employment days in 2018, were covered through timecharter contracts at an average daily rate of $14,850 (2017 = 33% coverage at an average daily rate of $15,433).
Such good level of timecharter coverage is one of the pillars of DIS’ commercial strategy and allows it to mitigate the effects of the spot market volatility, securing a certain level of earnings and cash generation even throughout the negative cycles, the company claimed.
DIS’ total daily average rate, both spot and timecharter contracts was $12,184 in 2018, compared with $13,150 achieved in the previous year.
TCE were $244.9 mill in 2018 versus $257.4 mill in 2017. The total includes $5.4 mill TCE generated by the vessels under commercial management, which is offset by an equal amount reported under ‘Time charter hire costs’.
The drop compared with last year is due to the much weaker product tanker market experienced in 2018. DIS realised a daily average spot rate of $10,798 in 2018, compared with $12,026 achieved in the previous year.
After a very weak product tanker market in October, 2018, freight rates rallied in the last part of 4Q18, allowing DIS to achieve a daily average spot rate of $11,617, slightly higher than the $11,299 realised in the same quarter of 2017.
EBITDA was $17.5 mill in 2018, compared with $36.8 millin 2017. The reduction was mainly due to lower TCE Earnings achieved in 2018.
Market conditions across all product tanker sectors were soft in the first nine months of 2018, largely due to existing oversupply of tonnage coupled with weaker demand trends. DIS said.
Rising bunker prices during the first nine months capped earnings during the period, contributing to more limited product arbitrage opportunities, mainly between the Atlantic and Asia, weighing on products trade growth.
In 4Q18, however, the market firmed considerably with Clarksons’ raising its estimate of growth in product tanker dwt demand for the year from 2.1% to 2.3%.
Among the factors contributing to weak conditions in 2018 was the reduction in products imports into Southeast Asia, which fell by 8% in the full year, partially as a result of reduced arbitrage flows from the West. Declining shipments into Brazil (which fell 18% year- on-year in the January/November, 2018) and Mexico in the first half of the year, also dampened overall volume growth.
Mexican imports recovered in the second half of the year and Brazilian imports from the US surged in the last quarter, rising by 54% between September and October, 2018.
As markets failed to show any signs of improvement in 3Q18, the timecharter rate for conventional (non-eco) MRs was between $12,500 and $12,750 per day. The improved sentiment in 4Q18 raised the rate at the end of the year to around $13,500 per day for conventional (non-Eco) MRs and to around $15,000 per day for Eco MRs.
Paolo d’Amico, DIS Chairman and CEO, commented: “2018 was unfortunately one of the worst years for product tankers in the last decade. However, DIS managed to mitigate the effects of such a negative market, thanks to a prudent commercial strategy coupled with a constant focus on strengthening its financial structure.
“The market was relatively weak throughout the first nine months of 2018 and hit historically low rates in the third quarter and the first month of the fourth quarter. This led our company to post a net loss of $55.1 mill in the full-year 2018. However, we were very pleased to see our market rebounding to profitable levels towards the end of the year, with clear signs of improvement confirmed also at the start of 2019, relative to the prior year.
“DIS’ daily spot average was of $10,798 in 2018 versus $12,026 achieved in the previous year. At the same time, we could count on 34.2% timecharter coverage during the year at an average daily rate of $14,850. Our total blended daily TCE (spot and timecharter) was of $12,184, which is a rather satisfactory level, given the weak freight markets confronted, proving once again that our prudent strategy of covering part of our fleet through long-term contracts allows us to mitigate considerably the effects of the negative cycles.
“Most of the industry’s analysts and players have a very positive outlook on the product tanker market and I totally share their view. On the demand side, the world product seaborne trade is expected to grow by 3% already in 2019 supported by an expected strong underlying oil consumption growth and by forecast global refinery capacity additions of 4.9 mill barrels a day between 2019 and 2021 (according to Clarksons).
“In particular, 2019 is expected to be characterised by one of the largest annual increases in refinery capacity in years, with an estimated additional 3.1 mill barrels a day (according to Clarksons). At the same time, the net fleet growth of the segments we operate in (MRs and LR1s) is expected to be limited and below 2% over the next two years. In addition, the major regulatory change that will come into force in January, 2020, limiting the sulfur content in bunker fuels, is widely expected to generate incremental demand for our vessels already from mid-2019.
“I believe DIS’ recent investments and our prudent commercial strategy, together with a very modern, versatile and high-quality fleet and organisation, will allow us to benefit in full from the next expected positive shipping cycle. Our investment plan based on 22 newbuilding vessels we began to order in 2012 is now coming to an end, with the last LR1 ship expected to be delivered in 3Q19.
“At the same time, we remain intensely focused in strengthening DIS’ financial structure. With this purpose, DIS’ Board of Directors approved a share capital increase amounting to the US$ equivalent of €44 mill, to reduce our financial leverage and improve our liquidity position.
“Once again, our controlling shareholder, d’Amico International, which has been supporting DIS during this difficult period, through share capital increases, early exercise of its warrants and direct loans, provided its irrevocable and unconditional commitment to fully subscribe the rights offering,” he said.