Sovcomflot says economic restart can help defuse tanker storage time bomb

Financial chief Nikolay Kolesnikov says fundamentals remain strong for sector despite headwinds

Russian state shipowner Sovcomflot believes a global resumption of trade can mitigate the looming problem of tanker storage unwinding.

The company said fundamentals in the sector remain strong and that it is optimistic about beating budgetary targets in 2020.

Chief financial officer Nikolay Kolesnikov told TradeWinds that markets have been reaching or approaching historic peaks last seen in 2004 and 2008, with "sky-rocketing" rates, "so it can hardly get any better".

There was some downward pressure in February, but he added: "Altogether, I think it's really hard to complain.

"We do anticipate that the storage play will stop at some point in time and the rates will slide down, but they will be adjusting down from a very high base from where they are today.

"So, even if the second half of 2020 does not continue at these exceptionally high rates, we are still well in line with budgetary targets for 2020, and it's hard to affect the situation because the supply is what it is."

Even though Kolesnikov expects some of the units being used for storage to be released back into the market, he sees hope for the sector.

Oil still being moved

"We are all waiting for the economies to restart and get back to work. That should stimulate trade and there will be more tonne-miles and more movements of hydrocarbons to and from refineries."

He added: "It will be a positive for tonnage as more energy will start to be consumed."

Kolesnikov said the question is how do countries catch up and compensate for lockdowns.

"There will be a drop in GDP this year around the world. Again people will try to minimise the impact and restart production and get people back to work and create jobs," he added.

The company has announced net profit of $116m for the first quarter in strong markets.

The CFO said it had been largely business as usual, with the added complication of halted crew changes due to borders closing.

But Sovcomflot was helped by many of its ships working within Russia.

"It's been a little bit easier to change crews," Kolesnikov said on not having to cross borders.

Disruptions at shipyards

There has also been some disruption to its newbuildings and scheduled dry-dockings due to shipyards being forced to close down, he added.

"But it looks like we're getting out of the woods gradually. Hopefully the virus is getting under control."

Rates are staying strong across all sizes and vessel types, he said.

The company has already been fixing ships on longer-term deals, but Kolesnikov said it takes comfort from the fact that the supply fundamentals of the tanker fleet are "very healthy, very strong", with a historically low orderbook.

He said the company has a very balanced business portfolio, with each division contributing to the bottom line.

"We don't anticipate any additions to the fleet. Even if people go back to the yards and start ordering now I think we're safe for the rest of this year and the rest of next year. We don't see that ordering happening. We are fine," he said.

"It's never boring as you know. It's keeping us awake and fit!"