Financial challenges due to record-weak market
Continuing large production cuts, stock reductions and consequences of the pandemic resulted in a record-weak market in the first quarter of 2021. In the MR and VLCC segments, average market rates (Clarkson) were at levels around USD 6,300 and 5,300 per day, respectively – the lowest rates since 1990.
Market developments continue to be reflected in our own earnings. Result before tax for the quarter amounted to SEK –120.2 (–29.0) million. EBITDA was SEK –45.7 (123.2) million, corresponding to USD –5.4 (12.7) million. In operational terms, this was one of the weakest quarters in the Company’s history. In addition to the generally very low freight rates, our financial position was also adversely affected by the largescale docking program, including significant investments in statutory ballast water treatment systems.
Active measures to strengthen the financial position
The tanker markets have been poor since 2017, apart from during a few short periods. 2020 would have been the year when they recovered. But that was not the case. Instead, the world economy came to a halt and demand for oil plummeted. This was all a direct result of the pandemic. The consequences of the protracted weak market are clearly reflected in Concordia Maritime’s financial performance and position. During the quarter, the Company negotiated a waiver, allowing a derogation from the working capital covenant. The waiver applies until 30 June 2021. In parallel, negotiations are in progress between the Company, lending banks and Stena concerning a solution to strengthen the Company’s financial position and liquidity. The outcome of the negotiations will be presented in due course.
At the time of writing, the end of April 2021, the tanker market remains very weak, as we previously predicted. However, our assessment of future market development is unchanged. We therefore believe that the market will already start to show signs of strengthening during the second quarter due to OPEC’s plans to increase volumes from May. We then expect a more significant increase in demand for tanker transportation during the third quarter – and therefore a stronger market. Several factors point to this:
- OPEC+’s unusually large production cuts have meant that the large stocks that built up in spring 2020 are back at the five-year average. This is a vital prerequisite for the market to return to strength.
- Oil consumption continues to recover. The EIA predicts that demand in 2021 will increase by a total of 5.6 million barrels per day compared with the average for 2020 – perhaps returning to 100 mbd by the end of 2021.
- The production cuts are about to be phased out. During the third quarter, for example, OPEC intends to increase production by a further 3.4 million barrels per day in order to better, although not yet fully, match demand.
- Looking at supply, the total order book for the product tanker segment is at about 6 percent of the total tanker fleet, the lowest level in 25 years. Net annual fleet growth in 2021 and 2022 is expected to be about 2 percent, including the phasing-out of older vessels. This is a historically low level that will contribute to a better balance and therefore a stronger tanker market.
Everyone who has followed us and the tanker market knows that the last few years have been challenging. It is obviously very encouraging that several market factors are now pointing in the right direction and we look forward to taking advantage of the opportunities that arise in a stronger market.