d'Amico International Shipping: Insights on Chartering, Capital Allocation, Fleet Modernization & Market Outlook
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d'Amico International Shipping, led by CEO Carlos Balestra di Mottola , is navigating a complex maritime landscape, balancing immediate market opportunities with long-term goals. In the most recent Capital Link Podcast, Mr. di Mottola shared the company's chartering strategies, financial outlook, environmental considerations, and the demand and supply factors shaping the product tanker market at the moment.
Highlights
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To watch the full interview, please visit the following link:
Chartering Strategy for 2024
In a market defined by shifting demand, d'Amico International Shipping has adopted a balanced approach to chartering. As of 2024, the company has secured 25% of its 2025 days and 17% of its 2026 days through
fixed rate contracts, with average rates around $25,000 per day. A coverage that provides earnings visibility and downside protection. Mr. di Mottola remains optimistic about the market's potential, especially for the first half of 2025, which is expected to benefit from strong spot market rates.
While d'Amico has secured favorable contracts, according to Mr. di Mottola, it aims to increase its coverage for 2025 to about 40% over the next few months. Notably, they remain selective in their chartering decisions, seeking only the most attractive deals. A recent highlight mentioned by Mr. di Mottola, includes a two-year contract for a conventional MR vessel at a very profitable rate.
Capital Allocation: Balancing Shareholder Returns and Growth
Capital allocation remains a priority for d'Amico, which boasts a strong balance sheet with low financial leverage and liquidity, including €129 million in cash as of the end of Q3 2024. In that sense, Mr. di Mottola outlined a clear plan to continue rewarding shareholders while pursuing strategic growth opportunities.
As expected, these plans include a significant allocation of funds toward their existing fleet expansion. This includes four newbuilding LR1 vessels ordered earlier this year, along with the exercise of purchase options on TC-In contracts and bareboat charter-in vessels, which could require a total of US$350 million in investment by the end of 2027. Despite these future obligations, Mr. di Mottola made it clear that they remain committed to returning capital to shareholders. In 2023, they distributed approximately 30% of their net profits through share buybacks and dividends, and they plan to increase this payout to 40% in 2024. It is important to note that, d'Amico recently announced an interim dividend of €30 million, to be distributed by the end of November 2024. The company also has been active on the share buyback front, repurchasing €8.3 million worth of shares in 2024.
Market Shifts in the Product Tanker Sector
Further into the discussion, the conversation revolved around the product tanker sector which has seen remarkable shifts in demand due to global disruptions, including the effects of the war in Ukraine, geopolitical tensions in the Red Sea, and the rebalancing of trade flows. Mr. di Mottola expects these disruptions to have a lasting impact on product tanker demand, with rising trade flows through alternative routes like the Cape of Good Hope as transiting the Suez Canal becomes more challenging by the day.
The transition of crude oil vessels into clean product tanker trade is another significant factor influencing the market. According to Mr. di Mottola, about 13% of long-haul voyages heading east of Suez in July and August this year were conducted by uncoated tankers, marking a 25 year high. This shift has increased the availability of vessels for the transportation of clean refined products, leading to a softening in product tanker freight rates.
Evidently, d'Amico has already seen signs of improvement in the crude tanker market since October, particularly in the Aframax and Suezmax segments. The larger VLCCs are lagging behind in performance, although have also recently provided some signs of improvements, with further gains expected as we enter the winter months in the northern hemisphere.
Sanction Consequences
Expanding on the war in Ukraine and the associated sanctions, Mr. di Mottola explained how these have reshuffled global trade routes, particularly for Russian oil exports. Russia has increasingly turned to markets in Asia, the Middle East, and Latin America, and these shifts have created a ripple effect across the global tanker market. d'Amico estimates that this geopolitical disruption has contributed to a 5-6% increase in demand for product tankers.
Additionally, the so-called dark fleet, comprising tankers that engage in sanctioned or illicit trades, continues to be a concern to all. As Mr. di Mottola mentioned, estimates suggest that over 1,000 vessels are involved in such activities, and while some may be operating under price caps, many of these vessels are older and poorly maintained, representing a navigational hazard. Mr. di Mottola made it clear that d'Amico welcomes the tougher stance authorities are taking on these vessels, as sanctions on these ships would help improve market conditions by reducing the fleet size for non-sanctioned trades, while ensuring better safety standards.
Fleet Supply: Environmental Regulations and Scrapping Trends
As environmental regulations continue to tighten, particularly with the introduction of measures like the IMO's carbon reduction targets and stricter fuel specifications, fleet supply dynamics are also expected to shift. Mr. di Mottola believes that d'Amico is well-positioned in this regard, with a modern fleet that is increasingly eco-friendly. Around 85% of the company's controlled fleet is eco designed, with an average age of just 9 years.
Additionally, we should not overlook the fact that new environmental regulations are expected to accelerate fleet scrapping of older vessels. By 2028, a significant portion of the product tanker fleet will reach the 25-year mark, with an estimated 5% of the fleet being scrapped annually between 2028 and 2031, with further increases in scrapping in the following years. Mr. di Mottola appeared convinced that this aging trend is expected to support the market by reducing the total supply of vessels, especially as more strict regulations penalize older ships.
Demand Outlook: Gasoline, Jet Fuel, and Naphtha
In the near term, Mr. di Mottola sees gasoline and jet fuel as the main drivers of demand growth in 2024. However, the demand for gasoil has been disappointing lately, mainly due to weak construction activity in China and stagnant industrial activity in China and Europe. As a result, the International Energy Agency forecasts that naphtha and jet fuel will lead demand growth in 2024 and beyond, whilst gasoil show benefit from a mild cyclical rebound in 2025.
Naphtha, in particular, is poised to benefit from growing demand in the petrochemical industry, while jet fuel is expected to continue its recovery as air travel rebounds. The IEA projects that non-OECD countries will see a robust increase in refining throughput, while refining in OECD countries is expected to contract slightly; this should contribute to an increase in ton-mile demand for product tankers.
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