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TORM plc (TRMD A) Q2 2019 Earnings Call Transcript

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TORM PLC (NASDAQ: TRMD)
Q2 2019 Earnings Call
Aug. 15, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for dialing in and welcome to TORM's conference call regarding the results for the Second Quarter and first half-year of 2019. I would now like to turn the conference over to Morten Agdrup, Head of Corporate Finance and Strategy in TORM. Thank you, please go ahead.

Morten Agdrup -- Head of Corporate Finance and Strategy

Thank you. Thank you for dialing in, and welcome to TORM's conference call regarding the results for the Second Quarter and first half-year of 2019. My name is Morten Agdrup, and I'm the Head of Corporate Finance and Strategy in TORM. As usual, we will refer to the slides as we speak, and at the end of the presentation, we will open up for questions.

Slide two, please. Before commencing, I would like to draw your attention to our Safe Harbor Statement. Slide three, please. With me today is Executive Director Jacob Meldgaard, and he will be hosting the call. Slide four, please.


Jacob Meldgaard -- Chief Executive Officer

Thank you, Morten, and good afternoon to all. TORM's Second Quarter 2019 results reflect our strong commercial performance despite the softer market conditions related to short-term factors, as well as the benefits we derived from our fully integrated in-house platform and the cost efficiencies that result in our low daily cash premium levels. We remain excited about the developments that we expect to begin to unfold for the coming months. And I will describe this in much more detail later in the presentation. But first, let me summarize our results.

In the second quarter of 2019, we realized a positive EBITDA of $40.6 million and a positive profit before tax of $5.2 million, which is about $0.07 a share. The return on invested capital was positive at 3.9%. In total, for the first half of 2019, we realized a profit before tax of $28.7 million, equivalent to $0.38 per share. This is the strongest half-year result in the past three years. We are really pleased that we are able to generate a profit also in the second quarter of the year which has been negatively impacted by there was an unusually high and prolonged refinery maintenance period. Our estimated Net Asset Value was $897 million as of end of the quarter, and later in the presentation I'll take you through a detailed breakdown of this particular metric.

Illustrating our continued focus on maintaining a solid balance sheet, the net loan-to-value was 51% at the end of the quarter. Our available liquidity was $367 million, which excludes the $99 million in proceeds which we will get from six recently concluded sale and leaseback agreements. The realized TCE rate was $15,405.00 per day here in the second quarter, and while the second-quarter rate was softer than what we experienced in the first quarter, due to facts that I'll describe shortly the rate was still well above the levels that we saw last year and does bode well for the balance of the year and beyond.

In the second quarter of the year, we've taken several steps to modernize our fleet and prepare for the new IMO 2020 regulation. We purchased four 2011-built MRs for a total consideration of $83 million, and these assets are expected to be delivered actually more or less as we speak here later in August. We are going to be financing this through a $66 million sale and leaseback transaction. We also sold older vessels, one '99-build MR which was sold and delivered during the second quarter and then two additional vessels subsequent to end of the quarter, which is a 2002-built MR and a 2004-built handy vessel. The total consideration $22 million is what we are getting from this, and we will repay an active debt of $13 million in connection with these vessel transactions.

Supporting the already strong capital structure we had, we've entered into an additional two sales and leaseback agreements here in the second quarter, and here the total proceeds will be $52 million, and we will be repaying $18 million in debt concurrent with those two transactions. In general, our preparation for the IMO 2020 regulation are proceeding as we have planned. We are pursuing a balanced approach where at the end it will result in 34 vessels in our fleet -- close to half of what we have -- being fitted with scrubbers. Of these, 28 of the scrubbers will be delivered from our joint venture ME Production in China. We have to date installed six scrubbers and expect that a total of 28 out of our currently scheduled scrubber installations would be finalized before the end of the year. The remaining six will be delivered next year that consist of three new buildings and then three retrofit installations, all expected to be taking place during the first quarter of 2020. Slide five, please.

So now, let's look at the product tanker market specifically. Here in the second quarter, our products in the field realized an average TCE earning which was at $15,405.00 per day. In the LR segment, TORM achieved LR2 rates of $17,894.00 a day and LR1 rates were at $14,582.00 per day. In our largest segment, the MRs, we achieved rates of $15,163.00 per day and finally, in the handy side segment, the achieved rates were $12,882.00 per day. In general, the product tanker freight rates softened here in the second quarter. As already mentioned, this is primarily due to seasonal refinery maintenance and this year, it has been not only higher than what we've seen in recent years, but it also was prolonged. It lasted simply longer, and this was coupled with several unplanned outages that further reduced capacity.

In Asia, in particular, maintenance was almost 50% higher than during the same quarter last year, and this obviously limited the East-West cargo movements. And at the same time, Naphtha flows from West to East declined. In this case, more due to petrochemical refinery maintenance and competition from cheaper energy available in Asia.

Turning to the U.S., there were a series of unplanned outages also there to several gasoline-producing units which supported transatlantic and transpacific gasoline flows. The former was interrupted for a period by crude oil contamination in the Druzhba pipeline in Russia that disrupted the work at a number of east and central European refineries. Towards the end of the quarter, I think as we all know, there was a fire and subsequent closure of one of the largest refineries on the U.S. East Coast, which again, at that time opened up for the transatlantic gasoline trade.

In the East, as already mentioned, the heavy refinery maintenance limited the long-haul diesel flows back to the West. This is worsened by a continued market cannibalization from our peers in the crude tanker market where new buildings actually transported about 30% of the East to West gas oil volumes during the quarter. So far here in the third quarter, the closure of the Philadelphia Energy Solutions Refinery continues to support transatlantic gasoline flows, while the East to West diesel flows have remained low due to a reduction in refinery runs and also unplanned outages in general East of Suez. So, however here we do see refinery maintenance starting to retreat significantly, which we expect to have a positive effect on strait flows. An effect that we are starting already to see in the Middle East market after a recent return of a number of the export-oriented refineries both in the Middle East, but also in India.

And then, as an overlay of this, we expect preparations to IMO 2020s that it's going to give an additional boost to the trade as bunker suppliers will start building inventories of compliant tools in the coming months. Slide six, please.

As already mentioned, spring refinery maintenances and outages this year have been heavier than first anticipated. For the first six months of 2019, the maintenance and unplanned outages have been 20% approximately higher than in 2018, and also maintenance has been prolonged this year, with offline capacity peaking first in May instead of traditionally in the March-April period. So, the heavier refinery maintenance indicated the refineries are preparing as one would expect for the upcoming IMO 2020 regulation. The higher maintenance here in the first six months is expected to be offset by lower outages in the second part of the year, supporting the production and transportation of refined oil for us. Slide seven, please.

When we look over medium to longer term, we continue to expect the structural dislocation between product demand and refinery centers to add ton-miles to product tankers as more refined products will be produced and exported from the Middle East to the rest of the world. For the coming years, the expanse in the region is expected to be significantly higher than in the previous three years, and more comparable to the level we experienced back in 2015. Here you can point to facilities such the new [inaudible] and KPNC's new refinery Azure will come online. We expect that this will reinforce the role of the Middle East as a key clean-product exporter and this will in turn contribute positively to the products in [inaudible] met over the coming years. Slide eight, please.

Another classic drive on the market obviously remains the IMO 2020 and the corresponding increase in demand for product tankers. We continue to expect that a considerable part of the new compliant fuel will be diesel based or based in plants containing diesel. We currently expect an incremental diesel demand of about 1.1 million barrels per day from the IMO 2020 implementation, implying an increase of around 5% in the product tanker trade in 2020 based on ton-mile. This increase will obviously depend on the refining industry's ability to shift into very low sulfur fuel oil production, also known as VLSFO.

Similarly, crude tankers are expected to gain from the IMO 2020 due to increased refinery runs and the need to store excess high-sulfur fuel. I'm quite convinced that these demand effects of the IMO 2020 sulfur regulation, combined with our own strategic steps ahead of the implementation date here on the first of January will prove beneficial for TORM for a number of years to come. Slide nine, please. So, let's look more laterally on the demand effects of IMO 2020. Stricter sulfur rules mean that the shipping industry will need to use additional marine gas along with a type of fuel that belongs to the family diesel. While the demand for marine gas, or a little more generally diesel, will increase in all world regions, flexibility to increase diesel production is much higher in regions that are already net exporters of diesel today.

As an example, considerable volume of new refinery capacity comes online in the Middle East and Asia. Russia is producing more diesel as part of its refinery operating program, and the complex U.S. Gulf refineries I expect to process more high-sulfur fuel. That becomes cheaper after 2020, and they will use it to produce extra diesel. At the same time, the main import ingredients -- the ones that produce too little diesel -- do not see any new refineries coming online in the next two years. So, therefore, their ability to respond to increased demand due to IMO 2020 is limited to the changes they can make in their refinery utilization and product use.

This suggests that on top of the trade routes we are seeing today, even more diesel will be flowing from export regions to import regions due to IMO 2020. And the majority of the incremental 5% trade growth that I mentioned will stem from long-haul trade and inter-Asian medium-haul trade. In addition, we expect to see more of the short-haul regional trade for redistribution of compliant fuels. Slide 10, please.

As already mentioned, our scrubber installation program is well under way. We currently have six scrubber-fitted vessels in operation, including four new buildings that were delivered with scrubbers installed. With respect to the remaining vessels in our fleet that will be using compliant fuels, we've begun to implement our IMO 2020 plan. This includes a timeline for changing bunkers on board each individual vessel. Bunker planning and replenishment of bunkers will be a gradual process and be timed around individual vessel voyages during the fourth quarter. We expect that other owners will follow a similar approach, gradually increasing demanding for compliant fuels starting toward the end of the third quarter and accelerated into and during the fourth quarter.

Ahead of this increase in demand, we expect global ports to begin stocking up on compliant fuels, continuing to build inventories through the end of the year. This should spark demand for product tankers to transport the compliant fuels to bunker suppliers and may be the catalyst that many market participants and observers are waiting for. We believe it is forthcoming in the marketplace. Slide 11, please.

Now, we turn to the supply side sectors of the market, and here the product tanker order book to fleet ration stands at about 7.4%. This is a historically low level. We estimate that the product tanker fleet will be growing by about 4.3% this year, while lower deliveries over the coming two years will result in an average fleet growth of about 3.2% per year over the period 2019-2021. This is down to around half, from an average of about 5.8% during the previous three years. It's also important, I think, to mention here that the actual fleet growth in 2019 might come in at a somewhat lower level, as a number of vessels will be removed temporarily from the market in relation to the scrubber retrofitting and tank cleaning. This could potentially move about 0.4%-0.5% of the fleet capacity. The slowing fleet growth rate is a key point to the fundamental process development that we expect for the product tanker industry as a whole. Slide 12, please.

To conclude my remarks on the product tanker market, TORM has a generally positive outlook, and for the 2019-2021 period, the product tanker percentage of market demand is estimated to grow at a compound and rate of around 5%, compared to an estimated net growth in TORM's supply of around 3%. So, the product tanker market is impacted by the key economic indicators such as the underlying oil demand and the general state of the economy. And here, we have clearly seen some weakness recently. But the segment-specific factors I've discussed, I expect to impact the market positively going forward, and to be a more significant contributor to the market development than the underlying world economy. In particular, IMO 2020 is an exciting development for the market, and that will certainly bring about both expected and unexpected outcomes. Slide 13, please.

In TORM's largest segment, the MR will continue to obtain very competitive freight rates. And I'm pleased that our results are at the top of our peer group again this quarter. In fact, if we look back to 2015, we've since then outperformed the peer group an average 17 out of 18 times, and this translates into additional earning power of more than $107 million over the period. And if we look at the second quarter of '19 alone, it's an outperformance of $8 million.

In general, it is very satisfactory that our operational platform delivers the competitive TCE earning and that we are well-positioned to take advantage of the already-mentioned promising demand fundamentals. Slide 14, please.

Before I review the OPEX and admin expenses, I'd like to remind you of TORM's operating model. We had a fully integrated commercial and technical platform, including all support functions such as an internal sale and purchase team, which we believe is a significant competitive advantage for TORM. Importantly, it also provides a transparent core structure for all our shareholders and it eliminates related party transactions. Naturally, we are focused on maintaining efficient operations and providing a high quality of service to our customers.

Despite this great hope, we've seen gradual decreases of 15% in our OPEX per day over the last five years. OPEX was approximately $6,500.00 per day for the first six months of 2019, which we can see is comparatively in light of our fleet composition. We also remain disciplined with respect to ATNA, although these can be expected to fluctuate a bit based on the size of our fleet. We believe that our profit before tax break-even rate of $14,500 per day achieved in the first half of 2019 reflects the efficiency of the One TORM platform and is highly competitive as compared to other owners in our segment. Slide 15, please.

With our spot-based profile, TORM has significant leverage to increases in the underlying product tanker rates. As of the end of the second quarter '19, every $1,000.00 increase in the average daily TE rate achieved translate to an increase in EBITDA of around $11.9 million in 2019, with a corresponding figure increase to $28.9 million in 2020 and to $30.1 million for 2021. We have a positive long-term view, as already mentioned, on the market. And we believe that we are well-positioned to generate significant cash flows. As of the 12th of August, here we have covered 60% of our third-quarter earnings days at an average TCE rate of $13,636.00 per day, and 31% of the total earning days for the rest of 2019 were covered at $13,738.00 per day. Slide 16, please.

As of 30 June 2019, we had available liquidity of $367 million, excluding the proceeds from the six sale and leaseback transactions. Cash totaled $106.4 million, and we had undrawn credit facilities of $260 million. Including the $99 million from the six sales and leaseback transactions, the pro forma available liquidity was at $466 million. Our total CAPEX commitments were $304 million, of which we expect to pay around $223 million this year. The remainder will fall due in 2020. The large majority of our commitments relates to our remaining six high-specification new buildings that all include scrubber installations. But we will also pay about $32.5 million in 2019 and 2020 for retrofit scrubber installations on vessels that are already on the water, and we will be paying $74 million for the four already mentioned secondhand vessels that we acquire during this month. With our, again, strong liquidity profile, the CAPEX commitments are fully funded and very manageable. Slide 17, please.

Finally, here I want to sum up our financial position in terms of key metrics such as the Net Asset Value and Loan-to-Value. Vessel values have increased by approximately 5% during the second quarter, and the value of TORM's vessels were $1.736 billion U.S. dollars as of 30 June 2019, including new buildings and the recently purchased secondhand vessels. The outstanding gross debt amounted to $720 million as of 30th June, and none of our debt facilities mature in 2019 or 2020. Finally, we have outstanding committed CAPEX of $271.4 million related to our newbuilding program and the purchase of our four secondhand vessels. In addition to cash of $106.4 million. This in total gives us a Net Loan-to-Value of 51% at the end of the quarter, which we consider as a relatively conservative level. The Net Asset Value is estimated at $897 million at the end of the quarter. This corresponds to $12.1 per share, or equivalent to 79.8 Danish Krone.

Just before we commenced this call, our shares were trading at 50 Danish Krone, or $7.40 per share, obviously a considerable discount to the Net Asset Value. In short, we have a balance sheet that still provides us with strategic and financial flexibility. Slide 18, please.

With that, I'll let the operator open up for questions, please.

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, if you do wish to ask a question, please press *1 on your telephone keypad and wait for your name to be announced. If you wish to cancel that request, please press the #. That's *1 if you wish to ask a question

You first question from the telephone lines comes from Jon Chappell of Evercore. Please ask your question.

Jonathan Chappell -- Evercore -- Senior Managing Director, Equity Research

Thank you. Good afternoon, Jacob.

Jacob Meldgaard -- Chief Executive Officer

Good morning, Jon.

Jonathan Chappell -- Evercore -- Senior Managing Director, Equity Research

So, you laid out a -- if you read the product tanker market review in your presentation and listen to your commentary, it seems like it was kind of the worst of all worlds, and you were still able to remain profitable during a very difficult period. And then, you highlighted how you expect things to improve in the second half of the year, which arguably should put you in a stronger position. But when you think about kind of the risks, what's called in the near-to-medium term, where do you think the optimistic view that we all share could go wrong? And when do you start to get worried if you haven't seen a significant and consistent uplift in the product tanker market? Is it by the end of the third quarter, well into the fourth quarter, or do you even need to see the beginning of 2020 before you start to get concerned that maybe IMO 2020 isn't having a favorable impact on the market?

Jacob Meldgaard -- Chief Executive Officer

Okay, thanks. That's a good question, and with your two questions, you gave the answer to No. 1, because obviously one worry would be that IMO 2020 is just something that we have made up as a combined industry to sort of be positive about the future, and that would not play out the way that we expected. That would be a significant risk, and so if I take that risk, then the other risk would be that I think the geopolitical environment, and there is quite a lot of things going around there, would have a negative effect on consumers, on decision-makers in general. And that you would have an abrupt hold to albeit the slower growth, but still growth in the world economy. But that you would simply see a recession worldwide due to geopolitical factors. Those would be the two things that you could see as errors which would be negative, and which would change our outlook.

And if I take the second one, I basically have not much more control than anybody else, obviously. The geopolitical environment seems to be changing by each week, so I don't think we should try to get into that too much. My personal thing is that there is a little more reluctant to just believe that this is just going to go away today than what was the case six months ago. And we see commentary now from people that are much closer to this than where I am, that maybe the trade dialogue between the U.S. and China would potentially continue all the way up to and including the election next year. So, I guess that my instinct is that this is something that is still evolving. And I don't think that it is negative in a direct fashion for the product tanker market, because trade flows between the U.S. and China are very marginally, and they would probably just be taken up by other refineries or trade patterns between the same areas. So, it is much more the secondary effect of that the global economy of decision-makers and consumers would have a break, a hard stop to their current spending.

Now, the IMO 2020 I guess we are more close to whether that is going to play out the way that we expect or not, and there I'm still, I would say, even more convinced today than six months ago. I think that the refinery maintenance that we have seen, if we take it refiner by refiner during the first and second quarter and here into the third quarter, there has been longer refinery outages, there have been in general more refiners taking our capacity at this point in time in order to prepare for the IMO 2020. And everything else being equal, this will be not much of effect. They're going to come back on stream, they're going to be producing, and we're going to be transporting part of this value, or sort of part of those volumes and creating value for the product tanker market in general, because you have additional demand coming in the coming period.

And that has been playing out. And clearly, freight rates have softened during that period. We can see that in our numbers. You follow it and it's very clear that there's ways it played out. But it's not even down to where we were four months ago. Stronger rates, and I expect that this is the bottoming of the market. The exact timing I'm not so nervous about, because the pieces itself is intact. So, to your second question about when would you start worrying, obviously at some point you would need to see that it happened. But whether it accurately called that it's going to be in September, October, November, I'm not fuzzy around that. We are patient. I've been in the business for 29 years, so I have time to wait for a couple of months more.

Jonathan Chappell -- Evercore -- Senior Managing Director, Equity Research

Okay. Very thoughtful answer. Two follow-ups, then, on that theme, kind of thinking about the way that TORM's position for the optimistic outlook. The transaction of the secondhand MRs and the structuring of that through the sale and leasebacks, I think that makes sense as an efficient way to add leverage to the market without straining the balance sheet. But then, the two sale and leasebacks after, of existing vessels. We've kind of become -- sale and leaseback structure is seeming to be more of a defensive structure during the down period of the market, but given your current liquidity situation and your view on the market kind of on the near-to-medium term, can you just explain why you chose to do the sale and leaseback route on some existing vessels? And should we expect to see more of those in the future, or is that somewhat of a one-off transaction?

Jacob Meldgaard -- Chief Executive Officer

Yeah, thanks for that. So, I think it's good to, as you point to its operating take on the two bullets, there's one with the four vessels that we have bought secondhand, and there's one for the two existing vessels. And for the vessels we bought, it was a strategic choice to choose one particular lender who has a big capacity and where we, by having entered now into one deal with four vessels, we feel that we strategically have opened up potentially if we at some stage would have the ambition to extend our presence even further, that we have now established a relationship with somebody who can write big tickets in an environment where lending in general is constrained. So, that was the strategic thinking around that, that it sort of fitted well.

The strategic thinking around the two other vessels or our existing vessels that are already in our structure and where we have a traditional bank debt associated with it here, what we saw was that we could actually lower our cost. On one of these transactions, we could lower our cost by transferring it from bank debt into a lease structure. This is with Japanese counterparts, where we simply see that they are more competitive. And so, this was a post issue that we actually don't use it as a 'defensive tool' the way you describe it, but rather as something where we say, "Okay, if you are there to transact this type of structure on those terms, then we are lowering our cost." And they would do that.

Jonathan Chappell -- Evercore -- Senior Managing Director, Equity Research

Okay, that makes sense. Final one: dividends. So, I mean, you've got a pretty clear strategy, and it seems maybe you've taken a step away from it this quarter. I mean, if we look at a pretty difficult market -- not as bad as last year, obviously. But the best first half in three years, $0.42 in earnings across the six-month period, the formula should have resulted in some dividend. And I know you explained it a little bit in the presentation, but it seems like, with the return of profitability, with the optimistic view, with the spare liquidity, and with the stock trading at a massive discount to your estimated NAV, could you just explain a little bit more the step away from the dividend policy?

Jacob Meldgaard -- Chief Executive Officer

Yeah, absolutely. So, that's a good point, and as we report too, we have a distribution policy where we semi-annually evaluate to be paying out 25%-50% of net profit in the company. And we have clearly said that strategically, that is our goal to do that. However, we also have in the same paragraph for official is that we all, at any given time, look at what is the best interest of the company in terms of strategic implementation of our financing of our activities. And here, we had a discussion with the board actually yesterday where we sort of said, "Obviously, we can follow through on the 25%-50% of this at the given time. However, as we see it, we still have some opportunities right now in the coming period where this cash will be better served to stay inside of the company.

It could be modernization of the fleet, it could be further scrubber installations where we tend to see still a compelling potential investment for our stakeholders. And given that the magnitude of dividends here was going to take approximately, let's call it $10 million, then obviously that would account so that you could add another handful of vessels with scrubbers, potentially. So, we're creating that optionality for us without, again, constraining our current strong financial position. So, that's the thinking. If it were optionable.

Jonathan Chappell -- Evercore -- Senior Managing Director, Equity Research

Okay. All right. Thanks for the thorough answers, Jacob.

Jacob Meldgaard -- Chief Executive Officer

Thank you.

Operator

Thank you. We do have one further question, and that's from the line of Epson Landmark of Fearnley. Please ask your question.

Epson Landmark -- Fearnley -- Analyst

Hey, good afternoon. I'm looking at page 20 in your slidex, which is kind of laying out the bunker market in '17 and '20, and the $1.1 million of the East [inaudible] share is probably a consensus view by now. And there's a similar amount of VLSFOs on initial glance. So, I guess my first question is some of these new products, will they move on clean tankers, potentially before being blended? Or if all of that is going to be mainly a crude trade?

Jacob Meldgaard -- Chief Executive Officer

Yeah, thanks for that. So, as you pointed to, in the case where the blend consists of gas oil, there you will have it. So, if the components are also diesel-based going into the new compliant fuels, then it will be clean product tankers that will be distributing it. So, it depends on how the blending formula is on the side of the producer. But the components will be transported on clean petroleum vessels.

Epson Landmark -- Fearnley -- Analyst

Okay. And then, I think some chief owners now are opening a bit up in terms of how their bunker consumption split will be next year. So, a bit of curiosity there for you between the HSFO on the scrubbed ships, the diesel, and the LSFO, how much are you planning on each of those? And have you taken any actions to secure volumes and price ahead of this already?

Jacob Meldgaard -- Chief Executive Officer

Okay, so in the trading business, I would argue that we can accord our ambitions around what we expect, but we really don't know the exact trade pattern that our fleet will have. But based on the experience we have of our historical trade pattern, and an overlay with dialogue that we have with the bunker suppliers, we expect that something 80%-90% of the compliant fuel, so to say, will be VLSFO. And then, the balance will be that we end up in ports or areas where we cannot get sufficient of the VLSFO, and where we will then be using the distillates or other fuel types. I think it's more suitable for, let's say, container vessels with a very regular trade pattern. There, I think if I take myself into management there, I would be structurally looking at getting supply contracts in place. Whereas for trade companies, I think it is not the most logical thing to do.

Epson Landmark -- Fearnley -- Analyst

All right. And I guess finally, you mentioned the master trade coming a bit under pressure in the second-quarter competition from the LPG side. I guess the amount of U.S. LPGs, they're not looking to slow anytime soon. And I guess with all this light shale oil in the market as well, the amount of Naphtha coming out of refineries in the East is probably not going to slow down either, potentially putting a lid on margins similar to what we've seen in the last couple of months. I guess the question is for you, how important is the Naphtha trade?

Jacob Meldgaard -- Chief Executive Officer

So, I agree, one, with your general statement that what we experienced, let's say it was last quarter, does seem to be not an outlier but it could be that that is something that is here to stay that you have more competition from LPG into the petrochemical industry, and also that locally in Asia, for instance, some of the refineries coming onstream in China would be supplying more of the local need. For us, I think it's less than 10% of the Naphtha trade. If you take ton-miles for larger vessels, then it's less than 10% of the current Naphtha that is originally -- for instance, in the Western hemisphere, when you look at ton-miles, I think that it's about 7%. So, you could say there is a risk, but we'll worry not for TORM specifically, but for the larger segment in the product tanker space that some of this up of West-to-East Naphtha could come under pressure. And it's about 7% on a global basis. At least, that was to me.

Epson Landmark -- Fearnley -- Analyst

Okay. Interesting. Thank you very much, Jacob.

Jacob Meldgaard -- Chief Executive Officer

Thanks. Thanks for the questions.

Operator

Thank you. There are no further questions, sir. Please continue.

Morten Agdrup -- Head of Corporate Finance and Strategy

So, this concludes the Earning Call of the Second Quarter and Half-Year Results. Thank you for dialing in.

Operator

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all participating. You may now disconnect.

Duration: 42 minutes

Call participants:

Morten Agdrup -- Head of Corporate Finance and Strategy

Jacob Meldgaard -- Chief Executive Officer

Jonathan Chappell -- Evercore -- Senior Managing Director, Equity Research

Epson Landmark -- Fearnley -- Analyst

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