Id like to hear what others read into the new STNG charter-in contracts just announced Monday. I might be wrong, but it appears that STNG is optimistic that rates will climb appreciably, so that they can re-charter these vessels above the charter-in rates (why otherwise do charter-in unless you actually need the vessel to haul your own products?).
"MONACO--(Marketwire - Dec 17, 2012) - Scorpio Tankers Inc. ( NYSE : STNG ) (the "Company") announced today that it has agreed to time charter-in three product tankers. The terms of the contracts are summarized as follows:
A 2007 built MR ice-class 1B product tanker will be time chartered-in for one year at $13,332 per day and is expected to be delivered by the end of December 2012. The agreement includes an option for the Company to extend the charter for an additional year at $14,319 per day.
A 2008 built LR2 product tanker will be time chartered-in for one year at $16,050 per day and is expected to be delivered by the end of the first quarter 2013. The agreement includes an option for the Company to extend the charter for an additional year at $17,050 per day.
Play, good to see you in one of my neighborhoods;)) my takeaway is similar to yours, that STNG management sees better times ahead for product vessels especially. this sentiment is shared by AF in her NNA strategy. the large ships on term contracts guarantee current cash flow while LRs & MRs represent the more opportunistic portion of fleet. need for downstream product is growing much faster than upstream and capacity more balanced. rates should tighten downstream even if crude market wavers. that's the menu anyway. happy holidays:) mjn
Great to read your reply. Been a while since DRYS days!
It appears that NNA is positioned in a manner, somewhat similar to DRYS 5 years earlier. In those days, DRYS shares, just gone public,were depressed...but that had a modern fleet positioned ahead of a secular upswing in dry bulk rates as demand began to quickly outstripp vessel supply. Of course, that story ended badly (for buy-and-hold investors and for the company), as too many new vessels were ordered. That seems not currently an issue in the product tanker space.
There appears to be considerable upside potential for product tanker rates, and I appreciate your comments. There has been discussion about whether NNA shares have been driven down as a reflection of a feared liability that is posed by NNAs VLCC fleet. Seems this is true if charterers don't honor the contracts. Otherwise, the over than $600M in revenue from those makes their purchase worthwhile. That revenue stream has allowed them to leverage and build the product fleet, without relying solely on bank loans which can introduce severe covenant restrictions. I believe their dividend payout is secure for the immediate term.
Would like to hear your view on other players here, like STNG and TNP. Any thoughts on GASS?
I have commented before about earlier moves by STNG of this sort. It appears to be a pure play on their beliefs about where rates are headed. John Fredrikson once described himself as a trader. On a given day he might pursue his conventional business of chartering out vessels. But if he saw an opportunity to make a profit, that same day he might charter in a vessel. He's a trader. In or out, makes no difference. It's a game of wits.