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Ardmore Shipping Corporation (ASC) Q2 2019 Earnings Call Transcript

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Ardmore Shipping Corporation (NYSE: ASC)
Q2 2019 Earnings Call
July. 31, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Good morning ladies and gentlemen and welcome to Ardmore Shipping's Second Quarter 2019 Earnings Conference Call. Today's call is being recorded in an audio webcast and presentation are available in the Investor Relations of the company's website ardmoreshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of this conference call will be accessible anytime during the next two weeks by dialing 1-877-344-7529 or 1-412-317-0088 in entering the passcode 10133853. At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.

Anthony Gurnee -- President and Chief Executive Officer

Good morning and welcome to Ardmore Shipping's Second Quarter 2019 Earnings Call. First, let me ask our CFO Paul Tivnan to describe the format for the call and discuss forward-looking statements.

Paul Tivnan -- Senior Vice President and Chief Financial Officer

Thanks, Tony, and welcome everyone. Before we begin our conference call, I would like to direct all participants to our website ardmoreshipping.com where you will find a link to this mornings Second Quarter 2019 Earnings Release and Presentation. Tony and I will take about 15 minutes to go for the presentation and then open up the call to questions. Turning to slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those forward-looking statements and additional information concerning factors that could cause the results to differ materially from those in the forward-looking statements is contained in the Second Quarter 2019 Earnings Release, which is available on our website. And now I will turn the call back over to Tony.

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Anthony Gurnee -- President and Chief Executive Officer

Thanks, Paul. So first let me outline the format of today's call. To begin with, I will discuss our second-quarter results and then key market developments, after which, Paul will provide a summary of our performance and update on recent tanker market activity, supply demand fundamentals, and a detailed financial update. And then I'll conclude the presentation and open up the call for questions. So, turning first to Slide 4 on highlights of the quarter. We're reporting a net loss from continuing operations of $3.4 million or $0.10 per share as compared to a net loss of $2.6 million or $0.08 per share for the first quarter, reflecting seasonally lower MR charter market conditions. The MR charter market performed in line with expectations in the second quarter with our tankers are earning $14,900 per day, down from $15,850 in the first quarter, but up substantially from $11,500 per day a year ago.

Rates on our chemical tankers improved to $12,850 per day, up from $12,150 in the first quarter, largely the result of voyage sequencing rather than a sign of strengthening markets. MR voyages for the third quarter to date are $14,000 per day, representing 40% of revenue days, reflecting what we believe is weakness from the final phase of the first half refinery turnaround. We expect activity to ramp up over the next month, with freight rates showing substantial improvements in September.

We completed 6 of 7 scheduled drydockings for the year, enabling us to take full advantage of IMO 2020 in the second half. Meanwhile, we're maintaining a strong liquidity position and balance sheet with quarter-end cash at $55 million and corporate leverage on a net debt basis of 52%. We sold 2004-built Ardmore Seafarer from $9.1 million and delivered in the second quarter. This restores our fleet average age to 5.9 years and completes our disposal program consistent with our policy to not operate vessels over 15 years of age.

While we're on the topic of vessel disposals, as Paul will explain fully later on, in order to be technically compliant with U.S. GAAP guidelines regarding the presentation of gains and losses on vessel sales, we are removing the optional line item income from operations from our income statement with everything else remaining as is. Regarding dividends, we're maintaining our policy of paying out 60% of earnings from continuing operations. Consistent with that policy, the company has not declared any dividend for the quarter. And as a final point, a reminder of our earnings market, earnings upside in the rising markets with 25 modern fuel-efficient ships and 100% spot market exposure, every $1,000 increase per day in charter rates translates into $0.27 in earnings per share.

Turning next to Slide 5 on key market developments. As already mentioned, MR product tanker rates subsided in the second quarter as a consequence of seasonally lower demand and heightened global refinery maintenance ahead of the IMO 2020 fuel switch. IMO 2020 cuts are unfolding as expected. Refinery upgrades and preparation should be nearing completion. The main fuel providers are commencing clean up with their logistics infrastructure and are preparing to stockpiles of client fuels in large quantities ahead of the switchover.

Pricing of HSFO has risen in some regions and availability is constrained as a consequence of reduced storage and barging capacity as some has already been taken out of service for the conversion to VLSFO. Oil traders or stockpiling low sulfur blending components, albeit in relatively small quantities thus far. Refinery throughput should be set to increase over the next few months with the advent of meaningful compliant fuel stockpiling in advance of the switchover.

And as a consequence, we expect product tanker freight rates to begin to benefit in September, as we stated in prior earnings calls. It's also worth noting that geopolitical events in the Middle East and Gulf, resulting in some disruption of tanker activity, but at least, thus far, having no meaningful impact on rates. However, it could do so if the situation deteriorates. We continue to monitor the situation closely and place the highest priority on ensuring the safety of our seafarers and the security of our vessels.

Turning to supply and demand. We believe the industry fundamentals we have now in place are very positive. Oil consumption growth is still relatively strong at 1.26 million barrels a day for 2019 and anticipated to be $1.4 million barrels per day in 2020. And overall product tanker supply growth, comprising MRs, LR1s, and LR2s remains very modest with annual net fleet growth expected to average around 2% for the foreseeable future. As a consequence, we believe that the elements are in place for a sustained upturn with IMO 2020 as both the initial catalyst and potentially a multi-year accelerator to demand. And on that note, I will hand the call back over to Paul.

Paul Tivnan -- Senior Vice President and Chief Financial Officer

Thanks, Tony. Moving to Slide 11, for a summary of our quarterly performance. We reported adjusted EBITDA of $12.3 million from the second quarter, loss from continuing operations was $3.4 million, or $0.10 per share for the second quarter, but the loss under GAAP was $9.9 million or $0.30 per share. The GAAP loss includes $6.6 million related the loss on the sale of Ardmore Seafarer. It's worth noting that earnings for the first half were impacted by reduced revenue days, as a result of scheduled drydockings. As at the end of July, we have not completed 6 of the 7 drydockings for the full year.

Ardmore fleet average TCE in the second quarter was 14,375 per day and 14,663 for the first half of the year. In the second quarter, the MRs average 14,892 per day, while the chemicals averaged 12,830 per day. Overall, the fleet continues to perform very well operationally, and the drydockings are coming in under budget for the year. Turning to Slide 8, for an update on the tanker market activity. Looking at the second quarter, we experienced reduced cargo volumes as global refining throughput dropped 700,000 barrels per day and year-on-year. Refining throughput is illustrated on the chart on the upper right and the drop in the second quarter represented the largest annual decline year-on-year in 10 years.

Charter rates east of Suez, were relatively firm with steady volumes and distillates moving from the Middle East and Asia into Europe, while in Atlantic basin, charter rates were more subdued due to lower cargo volumes on the back of refinery maintenance and lower trading volume. And finally, despite recent revisions to our consumption growth remains robust, supporting a continued drop in refined product inventories. Looking ahead, the outlook remains very positive. Global refinery throughput is set to increase by 4 million barrels per day, rising to a record throughput of 84.6 million barrels in August, resulting in a significant increase of volumes of refined products. Meanwhile, conditions are in place to increase trading activity. We have continued lower refined product inventories and regional on our balances, while geopolitical events in the Middle East and Gulf are resulting in disruptions to tanker activity and an uptick in oil price volatility.

Finally, IMO 2020 is expected to drive increased trading activity; as the transformation of the global bunker supply chains intensifies over the coming months. On Slide 9, we take a closer look on the underlying product tanker supply demand fundamentals. On the demand side, oil consumption growth remains strong, the I/O forecasting oil consumption growth of 1.2 million barrels a day for 2019, increasing to 1.4 million barrels a day in 2020. At the same time, as you will see on the chart on the upper right, average annual refinery capacity growth is 1.6 million barrels a day over the next 8 years, with an addition centered in the export-oriented locations. In addition to underlying demand, IMO 2020 is expected to result in an additional layer of product tanker ton-mile demand, which should be brought by the market in the coming months.

Looking at the supply side, we have added a total product tanker supply chart, which includes LRs and MRs as I think it's important to look at broader product tanker market in addition to the MRs and its competitive range. Overall, total product tanker of net fleet growth remains exceptionally low. The order book today stands at 172 ships or 5.9% of the fleet delivering in the third quarter of 2019 and the first quarter 2023. We are forecasting 108 product tankers to deliver for the full year 2019, out of which 80 have delivered year-to-date, and we expect annual scrapping to be in the range of 35 to 40 product tankers on average for the next 3 years. Altogether, we expect total tanker fleet growth net of scrapping, to be approximately 2.5% in 2019 and 1.9% in 2020. Supply growth for MRs on their own are in line with the net fleet growth of 2.1% in 2019.

The chemical tanker market is also positive and seaborne, and trade and commodity chemicals is expected to increase by 6% per annum through 2023, while fleet growth net of scrapping is expected to be 1.8% in 2019 and less than 1% in 2020. Overall, we believe the strong fundamentals will provide a solid foundation for a sustained upturn in the charter markets for both products and chemical tankers. Moving to Slide 11, we take a quick look at the fleet days. Revenue days are estimated at 9,108 days in 2019. We completed two drydockings and two ballast water system installations in the second quarter and in July, and we expect to 15 drydocking days in the third quarter in respect of the Sea Mariner which completed the drydocking this month. As Tony mentioned, the 6 of the 7 2019 drydockings are completed as of the end of July for our fleet is well-positioned to benefit from the increased activity expected in the second half of the year.

Turning to Slide 12, we take a more detailed look at our financials. Starting with overhead, total overhead costs were in line with expectations of $4.5 million for the quarter, comprising corporate expenses of $3.9 million and commercial and chartering expenses of $600,000. As mentioned before, in many companies, the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is a comparable overhead. Our full-year corporate cash costs are expected to be $12.3 million, which works out at $490,000 per ship annually. For the third quarter of 2019, we expect total overheads in corporate cash and commercial, to be $4.7 million, which includes both cash and noncash items.

Depreciation and amortization was $9.1 million for the second quarter, and we expect depreciation and amortization for the third quarter to be in line. Interest and finance costs were $6.5 million for the second quarter, comprising cash interest of $6 million and amortized deferred financing fees of $500,000 and we expect interest and finance costs for the third quarter to be also in line. Move into the bottom of the slide. Operating costs for the quarter came in under budget at $14.9 million. Standard opex for Eco-Design and MRs was $6,306 per day. Eco-Mod MRs came in at 6,872 per day, while the chemical tankers came in at $6,143 per day. Looking ahead, we expect operating expenses for the third quarter to be approximately $15.5 million.

Finally, as we look on the right-hand side, we wanted to highlight a change to the presentation of our income statement. US GAAP allows companies to opt to report a subtotal for income from operations and very clearly gains and losses on the sale of vessels should be included in the subtotal. We hold of you the gains and losses from vessel sales are fundamentally different in nature from income derived from chartering and alternation of vessels. Accordingly, commencing this quarter, we are removing the subtotal for income from operations, and we're also planning to restate the prior periods. We believe this is a better representation of the financial performance of the company as opposed to, including gains and losses in income from operations.

Turning to Slide 13. We take a look at charter rates across the fleet. Overall, the fleet average TCE for the first half of was $14,663. Looking at the various ship types of the first half of the year, Eco-Design and MRs in an average of $15,418 per day. Eco-mod MRs stands at $14,916 per day, while the 6 chemical tankers at an average rate of $12,529 for the first half. On the right-hand side, you can see a strong rebound in MR rates for the past two quarters with rates expected to improve further over the next few months and into 2020. Looking ahead to the third quarter as Tony mentioned earlier, with 40% of the days booked to date MRs are earning $14,000 per day, but the chemical tankers $12,000 per day. On Slide 14, we have our summary of the balance sheet. At the end of June 2019, total assets were $780 million, while our corporate leverage on a net debt basis, was 51.8%.

Turning to Slide 15. We remain focused on maintaining a strong liquidity position, and we're continuing to pay down debt. We completed the sale of the Ardmore Seafarer in May, which release net cash proceeds of $5.5 million. Our cash balance at the end of June was $54.8 million, and we've got $17.8 million in net working capital. All of our debt, including capital leases, is amortizing at $40 million per year, and finally, over 90% of our total debt, including leases is LIBOR-based, and every 25-bps reduction in interest rates equates to an extra $1 million in earnings or $0.03 per share annually. And with that, I would like to turn the call back over to Tony.

Anthony Gurnee -- President and Chief Executive Officer

Thanks, Paul. To sum up then, while MR charter rates subsided in the second quarter with the seasonal decline in activity, we believe the outlook is very positive. Product tankers supply demand fundamentals continue to be compelling, with ton-mile demand growth anticipated to meaningfully outpace supply growth in the coming years. IMO 2020 is unfolding as expected, most notably, refinery upgrades and preparations should be nearing completion. Marine fuel providers are commencing cleanup of their logistics infrastructure. Pricing of HSFO has risen, and availability is constrained as a result of reduced storage and barging capacity. And oil trading are stockpiling low sulfur blending components. We expect to see these preparations expand significantly in scope as we approach the switchover phase and to see a meaningful impact on product tanker demand commencing in September.

With our modern fuel-efficient cost-effective fleet and cost-effective structure and spot trading strategy, we believe Ardmore is well-positioned to take advantage of the anticipated market recovery and to generate strong returns for our shareholders where every 1,000 a day increase in charter rates translates into $0.27 in EPS. And as a final point, with this quarter, we are commencing reporting of our CO2 emissions. Beyond owning and operating a modern eco-fleet, we've maintained a strict focus on fuel efficiency and environmental best practices throughout the company's history. We believe that a commitment to increase transparency by companies, such as Ardmore, will play an important role in encouraging positive and sensible legislation -- legislative change toward reducing greenhouse gas emissions from the shipping industry.

And with that, we're happy to open up the call for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question and answer session. Ask a question you may press *1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If it anytime your question has been addressed, we would like to withdraw your question; please press *2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jon Chappell with Evercore.

Jonathan Chappell -- Evercore ISI -- Analyst

Thank you, good afternoon, guys. Paul, I wanna start with you on the liquidity slide, Slide 15. So close to $55 million on liquidity annual debt repayment of just under $40 million, obviously, or hopefully it will be free cash flow generation as well as the market recovers. How do you think the minimum liquidity that you want to keep on hand? I'm trying to figure out what your free firepower may be worth today based on the current position?

Paul Tivnan -- Senior Vice President and Chief Financial Officer

Great question, Jon. We're obviously very in a comfortable position with our liquidity. I think in terms of our cash, I think, we've always tried to keep it around this level or arguably are a little bit lower. I think we have potentially a little bit of excess cash to deploy, but not a huge amount. So, I think we can afford a little bit, but I think, more -- maybe less of, but we're pretty comfortable right now.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay. So then under the assumption that free cash flow starts to ramp and that gives you a little bit of flexibility. You also introduced in your press release above and beyond the CO2 emissions your in-house NAV, which is really interesting. So based on the NAV, direct replacement value, you're trading at 25% discount today between the commercial management, commercial management estimated 28% discount. So, I understand there's liquidity concerns for trading volume, it's no different today than it would be if you repurchase some shares. Have you thought about closing that gap using the arbitrage, maybe with something like the proceeds from Seafarer to kind of narrow that valuation gap?

Anthony Gurnee -- President and Chief Executive Officer

Hey, John, this is Tony. Do you want Paul to answer that or me?

Jonathan Chappell -- Evercore ISI -- Analyst

Both.

Anthony Gurnee -- President and Chief Executive Officer

Well, look, I mean, thanks for noticing that. We put that table in and the primary purpose of it was to just to provide better transparency on the way the company is being valued because we have some concerns that not anybody, in particular, on this call, but there's sometimes come up with NAV estimates that are just really out of line, and we think it's because they don't have enough information on the vessel specifications. And we decided to put in what we called DRV, or depreciated replacement value, a marker for value because it's fairly uncontroversial. It's really just the straight-line calculation of the new building estimates, and it's something that does indicate under the current conditions that there is some significant upside in the NAV just reached back to that level, forgetting about the fact that the newbuilding prices are likely to go up as well. But we thought that if we put that in because then as people compare that to the valuations they have for our fleet, they can see where there are real disconnects and discrepancies against the DRV.

In terms of the share buybacks, that really is part of the broader question around capital allocation, which involves dividend policy, fleet investments, debt repayments, etc. And our position there is always something that's constantly on our mind; it's an ongoing with the Board and so without giving the specifics, we do recognize the point you're making. We have done share repurchase in the past, the amounts that you can do a very limited just by virtue of our trading volume and the restrictions under share repurchase programs. And in the end, we didn't feel that it was particularly impactful because nobody remembers today and then I think it really equity in any meaningful value. So that -- I think that that's, Paul, do you want anything to add?

Paul Tivnan -- Senior Vice President and Chief Financial Officer

No, I think that's well covered, and Tony's point of DRV is absolutely right. We've seen quite a lot of discrepancies in terms of valuations for the different ships. And so, I thought it was important to create kind of relative analysis as well as provide a lot of details on the ship so people can effectively make up their own mind and that they're pretty credible a reference point to kind of assess the value themselves.

Jonathan Chappell -- Evercore ISI -- Analyst

I would just say to tie those two questions and answers together, you're always kind of $1,000 a day increase in the rates changes your EPS by X amount of cents and it doesn't really take a lot to move the needle, given your shares outstanding that a couple of million dollars allocated to reducing the float would move that $0.27 that's today probably pretty meaningfully. But anyway, that's it's a bigger capital allocation topic as you noted. Just one quick last one for me. The opex guidance that you gave with 3Q, Paul, $15.5 million versus the $14.9 million in the second quarter, not a huge number, but stands at a little bit it gets going up despite the fact that the fleet shrunk with the sale of the Seafarer and the fact that your drydockings have been front-end loaded. So, Is that timing around purchases or something else? And how should we think about kind of going forward and closer to the 14, high 14s or mid 15s?

Paul Tivnan -- Senior Vice President and Chief Financial Officer

Yeah, I mean, for the most part, Jon, that's came in under budget, that we had expected in the second quarter largely due to the timing. And I think what we've estimated for the third quarter is that and kind of come back in line or make up a slight difference for the third quarter. So, I think, as you kind of think ahead for the fourth quarter, it's obviously 25 ships now, the Eco-Designs are running at $6,200 a day. So, I would say around $15 million markers is kind of a safe run rate getting toward the end of the year.

Jonathan Chappell -- Evercore ISI -- Analyst

All right, thanks Paul, thanks, Tony.

Operator

The next question today comes from Randy Giveans with Jefferies.

Randall Giveans -- Jefferies -- Analyst

Howdy gentlemen, how's it going?

Anthony Gurnee -- President and Chief Executive Officer

Good Randy.

Randall Giveans -- Jefferies -- Analyst

Two questions from me. So, first, obviously, no scrubbers in orders, with that, do you plan on burning MGO next year? Or you switch to kind of the VLSFO blends despite maybe comparability concerns and with that, when do you plan on cleaning of your tanks to switch from HSFO to either MGO or VLSFO?

Anthony Gurnee -- President and Chief Executive Officer

Our intention is to burn VLSFO wherever we can stand of the qualities that we're confident about. It will very much be a market issue at that time. We won't be alone in that regard. At this point, we're quite confident that there will be sufficient quantities of VLSFO available from reputable suppliers. So that we don't view as a major concern, but to the extent, we do have concerns, or we're trading into areas where it's not available. MGO would be the way to go, and that would be priced into the voyage. Compatibility, I think is something that we've thought through and I think we're well prepared for it and I think the answer there is you simply don't, except in very, very small percent quantities, load on top into a tank that had a prior fuel oil cargo in that tank. So as long as you use your segregation properly, we don't see that as a major issue. Regarding cleanup, that something that's been under way for a while. We've got around an approach that we won't go into detail about, but we're very happy with the progress, and we'll be ready to start loading confined fuels as early as September if needed.

Randall Giveans -- Jefferies -- Analyst

All right. And then following to sale of Seafarer, you have obviously built forward 2006, as such with the cash on hand maybe some free cash flow in the coming quarters, should we expect more fleet acquisitions than sales in the coming quarters?

Anthony Gurnee -- President and Chief Executive Officer

Again, we're not really in a position to have our tip our hand regarding our intentions on asset acquisitions and dispositions of our commercial strategy. So, we did say is that we've now sold off the ships we wanted to. We would like the profile of the fleet we think it's really high-quality, high-performing fleet. And that's matched with our desire over time to create value and shareholder value through any means necessary.

Randall Giveans -- Jefferies -- Analyst

All right, well that's fair. Thank you so much.

Operator

Your next question today comes from Ben Nolan with Stifel, please go ahead.

Benjamin Nolan -- Stifel, Nicolaus & Company -- Analyst

Hey guys, how's it going, Tony, Paul. My question, I guess, I have a couple, and I'll start with sort of the specifics on the quarter. Your MRs did pretty well, certainly relative to having the broader market. Was that just attributable to having good positioning at the right place, at the right time or I don't know, how do you think through the performance in the quarter on MR?

Anthony Gurnee -- President and Chief Executive Officer

It bounces around quarter-to-quarter. We're certainly happy with this 1 from what we're seeing so far relative to the market. Probably has a bit to do with the positioning, but also we're very focused on operational performance, and we've got a really high-quality fleet profile.

Benjamin Nolan -- Stifel, Nicolaus & Company -- Analyst

Okay. And now switching over a little bit to just kind of IMO stuff. As we think through how the market is going to from a physical perspective, utilize ships to move MGOs, in particular, but also all the fuel that's going to be needed and shift toward using product tankers. Do you have any sense of where demand is going to fall in terms of is there going to be, maybe a larger LR trade that can pull up the MR market or are people that are looking to position themselves and build inventories may be looking to do so with MR cargoes and maybe they are the primary beneficiaries, any thoughts about that?

Anthony Gurnee -- President and Chief Executive Officer

Yes, it will probably be a mix of all that. And as you know, when charters you're deciding what ship size to use, that take a whole bunch of factors into account, and that would be the same in the situation. So obviously it depends on the capacity of the ports you're going too. But also, relative freight rates and the good cost associated with the total voyage in terms of canal cost and port cost and that kind of thing. So, it's not always obvious that what should be a long haul and therefore, larger stem doesn't always work out that way because of those details. And in fact, MR is very often engaged and very, very long-haul voyages and LRs, sometimes do fairly short hauls. So, it's a bit of a mix. We think that it's likely to involve a flow of the cargo, generally from the east to the west, and that could be a mix of both, and of course, if LRs get to the west and need to get lighter or distribute cargoes, that's going to involve MRs as well. So, it's hard to say, but we don't think it will be any different from where oil traders approach the rest of the business.

Benjamin Nolan -- Stifel, Nicolaus & Company -- Analyst

Okay. And then lastly, as we're thinking through, and I think the market is thinking through what is going to be the mix of MGO versus VLSFO, and it seems like there at least here lately in the last month or 2 months, it is a function of forward curve flattening a bit, the market is getting a little more comfortable. There is not going to be a dramatic shortfall of say MGOs and the VLSFOs, sorry, all the acronyms, are you alluded they're going to be a little bit readily available, assuming that, that is, how it plays out, how does that impact the product volumes? Would you move both of them, on say a clean tanker or the VLSFOs maybe stick a little bit more with 30s or how do you see that playing out?

Anthony Gurnee -- President and Chief Executive Officer

I think the way to answer that is maybe to start with the basics, which is that if there is roughly 2 million barrels a day of HSFO, that's going to displaced and replaced with something. The VLSFO is, we believe, substantially more than 50% middle distillate, toward some intermediary feedstock components, that's destined for middle distillate and mid grades coming out of refineries. All those components at the moment are being used, right? By somebody at somewhere. And so, if you're looking to replace roughly a million barrels a day plus, with components or with MGO, that's going to either come from somewhere else and some arguments have been made that might be vacuum gas oil, which was otherwise on its way to producing in the refineries producing naphtha, or gasoline. There's a possibility there although there are some machines we're using that we think as a burning component indiscriminately. But just rambling a little bit, but the point is that we think this is kind of adds up to greater refinery throughput, just because of the simple math.

In terms of what types of ships that we move on, the reality is that once it's blended, the VLSFO we think is a dirty cargo. However, if you've been carrying various grades of crude or HSFO, in those ships before you have to be very careful about cleaning because the tolerance below the stack is very, very tight. So, we've seen some that are, for example, 0.485% and then the tolerance then the limit is 0.5%. So even cleaning of those ships is going to be a bit tricky and perhaps a little bit time-consuming. But we do believe that certainly the MGO and even the components going in will probably ship on various types of product tankers. And it seems like a lot of the blending has been done at the -- it's going to be done at the point of consumption, not at the point of production. So, it's not like it's being necessarily named and location, A, and then ship to location, B, thing bringing the components in and blending it close to the point of consumption.

Benjamin Nolan -- Stifel, Nicolaus & Company -- Analyst

Interesting. Very helpful and very thorough, I appreciate that Tony. That does it for me, thanks a lot.

Operator

Again, if you have a question, please press *1. Our next question today comes from Amit Mehrotra with Deutsche Bank. Please go ahead.

Christopher Snyder -- Deutsche Bank -- Analyst

This is Christ Snyder on for Amit. So, I know you guys touched on the market outlook in your prepared remarks, but I was just hoping to focus on recent developments as those spot rates have taken a step lower in July, a time when at least we were expecting farming with refinery throughput starting to outpace normal seasonality. Can you maybe just provide some color on what specifically pushed rates lower in July, and have you been surprised by the move?

Anthony Gurnee -- President and Chief Executive Office

Yes, I think we were a little bit disappointed with the slower. And we just think it's an extension of the process that we went through in the second half, largely due to refinery turnarounds and just lower activity at the moment, but we don't think it's of great concern.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay. Fair enough. And then time charter rates seems like they continue to form a pretty attractive level right now. Have you guys given any consideration to maybe taking some risk off the table and locking into some term rates?

Anthony Gurnee -- President and Chief Executive Officer

Not at current levels.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay. And then kind of going back to the fleet renewal conversation from before, so obviously, you guys have been selling older vessels in line with the company strategy, but at the same time, you're, of course, pretty bullish on the outlook. Can you talk about the ability to add leverage to the pending upcycle, it feels like it's going to be pretty hard maybe to find willing sellers right now, which is kind of I mean pretty bullish? What do you think about maybe chartering in some vessels and is there anything you guys think about and then try to maybe add some juice to the IMO catalyst?

Anthony Gurnee -- President and Chief Executive Officer

Well, maybe we can just start by explaining that we think we have a lot of juice already and we're 100% spot. We're significantly leveraged to the upside. In 2015, our ships earned $25,000 a day for a period of time in the strong market. We get back to those levels, you're talking probably $2.50 to kind of $3 per share in earnings and given where the stock price is today, we think that's a significant amount of upside. And the same thing with our NAV per share, every $1 million a day increase per ship is $0.80 in NAV. So, I'm not really sure we have to add a lot of more to what we've already done. And we're always looking for ways if we see good bets that we can take. We're always looking for ways to further enhance the earnings upside and the earnings power, but I think, we're not -- we don't set it as a very high purity because we think we're really well-positioned already.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay. And then kind of staying on that potential acquisition front with the chemical tankers, you guys provided some information in the slides, I think you said demand is growing 6% per annum to 2023 with fleet growth running below 2% and kind of declining. Clearly, that's quite attractive, but in that segment, rates never really seem to move much at least is this more a reflection of the MR market kind of weighing on the chemical market? And how do you think about adding chemical tankers just kind of given that pretty attractive outlook?

Anthony Gurnee -- President and Chief Executive Officer

I think the analysis was 6% over those few years. And then with ton-mile expansion and some other aspects that kind of translates into, we think, maybe 4% per year and which is very similar to the MR sector, and that's not necessarily surprising because as time goes on, there is normal overlap between the 2 sectors. The MRs do a lot of business that chemical tankers would prefer we stay away from and the chemical tankers actually move a lot of CPP, especially the simpler ones like the ones we own, are doing these kinds of flexi trades and maybe kind of shorter voyage activity. So, when for our ships when the chemical market is weak, they can tend to do up to 50% in CPP. And when it strengthens that can go up to 75%. So that overlap, I think, really joins the 2 sectors at least when it comes to the commodity chemical world, a fairly tight and we think they both they share the same upside potential.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay, thank you for the time, that does it for me, appreciate it.

Operator

Our next question today comes from Greg Lewis with BTIG.

Gregory Lewis -- BTIG --Analyst

Tony, I just had a quick question for you. In your prepared remarks, you kind of talked about forming newbuilding prices and just kind of any kind of further color around that because like is that something you're seeing or just sort of how you're thinking about that?

Anthony Gurnee -- President and Chief Executive Officer

That must have been another call. The newbuilding prices.

Gregory Lewis -- BTIG --Analyst

Okay because I thought you said in your DR, in your DRV, you're kind of talking about that's based on newbuilding prices, and you kind of have the sense that they're firming? No?

Anthony Gurnee -- President and Chief Executive Officer

Okay. Those were unprepared remarks. They were that was Jon's question in the beginning, but anyway, that's fine, that's good. Yes, look, I mean, or at an interesting point in the newbuilding cycle as well because the order book is really quite low. Meanwhile, the cost input cost for the shipbuilding had been going up, and shipyards reached in the recent couple of figures and seem to have found a real discipline around pricing. And so, as a consequence, there doesn't appear to be a lot appetite to take a lot of orders in at current pricing levels, which are probably like $36 million to $37 million for like MR. And we think that when the market begins to move, there's significant upside in newbuilding prices. Just by way of backgrounds, in the last strong market, newbuilding prices for MRs went up to, again, at the lower cost base, went up to over $50 million. And in fact, at that point, prompt delivery ships were sitting around $55 million.

So, we're not -- I'm not laying that out and suggestion, and that's where things are going in the near term here. But we do believe that there's some meaningful upside. And then on the other aspect, I'll just maybe just mention in that regard is that it's not simply newbuilding prices. But as you get to the older ships, they're trading, and I think, which Jon was pointing out, they're trading at a significant discount to that depreciated replacement value line. And so, there's a lot of catch-up that can happen there as well. So, between that and newbuilding prices rising, you could see very significant accretion to NAV and stocks like Ardmore.

Gregory Lewis -- BTIG --Analyst

Okay, guys. Hey, thank you very much.

Operator

As there are no further questions, this concludes our question-and-answer session. The conference is now also concluded. Thank you for attending today's presentation. You may now disconnect.

 

Duration: 42 minutes

Call participants:

Anthony Gurnee -- President and Chief Executive Officer

Paul Tivnan -- Senior Vice President and Chief Financial Officer

Jonathan Chappell -- Evercore ISI -- Analyst

Randall Giveans -- Jefferies -- Analyst

Benjamin Nolan -- Stifel, Nicolaus & Company -- Analyst

Christopher Snyder -- Deutsche Bank -- Analyst

Gregory Lewis -- BTIG --Analyst

 

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