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Euronav NV
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Good morning and good evening, and welcome to the Euronav Q1 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.I now would like to turn the conference over to Hugo De Stoop. Please go ahead, sir.
Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q1 2019 Earnings Call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Tuesday, April 30, 2019, and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements which are not statements of historical facts.All forward-looking statements attributable to the company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the company's filings with the SEC, which are available free of charge on the SEC website at www.sec.com and on our own company's website at euronav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and the company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements. Please take a moment to read our safe harbor statement on Page 2 of the slide presentation.I would like to start with the agenda slide on Slide 3. I will run through the Q1 highlights and provide a full financial review of the income statement and balance sheet before looking at the current themes in the tanker market and Euronav's outlook before we take questions.So turning to Slide 4 and the highlights page. The graph on Slide 4 illustrates the resilience and continued strength of the VLCC market in particular during Q1. At the same time, the Suezmax fleet traded at near-P&L break-even levels. This performance in our view reflects a better balanced VLCC market following last year's vessel supply adjustment through scrapping and strong growth in the U.S. exports. The U.S. expansion not only attracts stronger rates, but as a largely VLCC-driven trade also absorbs a high level of capacity due to these cargoes mostly traveling long haul to Asia.Delivery of freight rates in the $35,000 per day region despite OPEC cuts and increased vessel supply are something I will focus on in more details later. Through most of Q1, capital markets took a different view to the freight market with our equity value trading at a substantial discount to our net asset value.Euronav took affirmative action throughout the quarter and bought back $20 million worth of stock as part of our approach of consistently looking to create longer-term value of our shareholders. It is pleasing to report that since the quarter end, capital markets have recognized the disconnect between equity and asset values, but the Euronav Management and Board remain vigilant on this issue and will continue to act opportunistically should we believe value can be created with further buybacks.In terms of current trading, there's been some expected seasonal weakness with VLCC rates fixed at $26,500 per day and Suezmax at $18,000 per day for around half of Q2 so far. This was anticipated given the very deep and sustained refinery maintenance programs being undertaken early so that refiners can prepare for IMO 2020. We believe that the current quarter may represent the seasonal low in freight rates for 2019 and not Q3 as traditionally seen in prior years.Moving on to Slide 5 and the income statement. Application of the new accounting standard IFRS 16 has made an increase in our depreciation charge of $7.2 million per quarter. This relates to the 4 VLCCs which were part of sale and leaseback in December 2016. From an accounting perspective, these ships now return to the Euronav balance sheet. It is important to remember that Euronav is fully exposed to the tanker market during 2019 with just 1 dry dock for 1 Suezmax during this year.Moving on to Slide 6 and the Euronav balance sheet. Our balance sheet remains strong with the benefit of positive cash flows adding to our liquidity position during Q1. Liquidity now stands at $785 million, up by over $100 million from $674 million at the end of December. As the freight market returns profitability, the leverage remains amongst the lowest in the tanker sector at 46% marked to market.Turning now to Slide 7, I would like to give the word to Brian Gallagher, our Head of Investor Relations. Thank you. Brian, over to you.
Thank you, Hugo. Slide 7. The continued growth of U.S. crude exports has been a key driver of our market and especially the VLCC fleet. Year-to-date, exports have been running at 2.7 million barrels per day on average, a 30% rise on last year, and there have been several weeks of recording over 3.5 million barrels per day. So the capacity is there.As the chart shows on Slide 7, however, there is much further to go in our view. This is something we examine in greater detail in this year's special report, in our annual report, which you can find on the website of Euronav.The chart indicates potentially nearly 8 million barrels per day of capacity by 2021. This is nearly 3x the current level of export capacity. Analysis by operator brokers suggests that this could require up to 180 additional VLCCs to manage this growth if this happens. A key factor behind such an encouraging figure lies in the absorption capacity that the U.S. exports have on the VLCC fleet. This is something we look at on the following slide on Slide 8.Slide 8 shows a snapshot from the middle of Q1 showing a dozen empty VLCCs that were moving to the U.S. Gulf Coast empty. This is becoming a key feature of our market, with vessel servicing this growth by trimming their own ballasts. Don't forget VLCCs cannot use the Panama Canal. So this trade has to be executed by absorbing a higher number of ton miles.So the first signal we are seeing from the market is that U.S. exports are positive. The second is a longer-term one from asset prices, which we look at on Slide 9. The correlation between asset prices and share prices is much stronger in experience of Euronav than between freight rates and share prices.As Slide 9 shows, the correlation with equity values on newbuild prices is 84% since Euronav started trading on Euronext in 2004. Asset prices have consistently been rising since 2008 since we announced our merger with Gener8, but equity values have remained largely static. Asset prices continue to remain firm, and the outlook remains positive with consolidation in the key Korean shipbuilding markets reducing supplies further. The disconnect between asset and equity values contradicts the longer-term history shown on Slide 9. This is something the management have been keen to address with our share buyback program during Q1, where we bought over $20 million worth of stock back.Moving from a longer-term signal, I would now like to move on to a more short-term signal. And the resilience that the market is shown in the freight market during Q1 on Slide 10. Slide 10 shows a number of data points. The blue line shows the global oil supply from Q4 2008 (sic) [ Q4 2018 ] through to the end of 2019. These numbers are from Citigroup. The scale of the OPEC cut is clear into Q1. The dark-blue bars show the deliveries of VLCCs that have come through during the same period with nearly 30 units being delivered in Q1 alone.But to put these figures into perspective, during Q1, we saw a reduction of around about 3% in our demand coupled with a 3% rise in vessel supply. Therefore in this context, Q1 VLCC rates of $35,000 a day are very respectable. This resilience looking forward with oil supply should start to recover as the areas about the U.S. and Brazil continue to expand production.On the fleet supply side, the pace of new deliveries of VLCC equivalents is forecast as slow during Q2, Q3 and Q4, and this will be supported by VLCC and Suezmaxes exiting the market on a temporary basis in order to retrofit scrubbers. We estimate there are around about [ 190 ] VLCC equivalents earmarked to retrofit during the rest of this year. That's around 20% of fleet capacity implying each out of action for 60 days and a reduction on a net basis of 2% to 3% in overall fleet capacity. We cover this in the light-blue bars on Slide 10.Finally, there should be some scrapping over 2019 but also the removal of further VLCC tonnage from the Iranian fleet as sanction waivers expire next month. Already, 3 out of the 8 nations importing Iranian crude are already down to 0 imports.So in conclusion, it is clear from Slide 10 that from Q2 onwards, the headwinds our business has faced or is facing should move towards tailwinds as demand in the form of oversupply recovers and supply vessels are impacted by retrofitting activity, potential scrapping and the reduced pace of newbuilding deliveries. This point is the Q2 being potentially the seasonal low in freight rates in 2019. And it's important to stress here that Euronav will be fully exposed to this potential improvement. As Hugo said earlier, we only have 1 dry dock scheduled for 2019, and that's the Suezmax. So all of our VLCC fleet will be available for 2019, and none will be in the shipyard being retrofitted.To conclude, we look at our outlook slide on Slide 11. Importantly for us, we are upgrading one of our traffic lights for vessel supply to amber today. There is still a very heavy delivery schedule in place for the rest of 2019 with around 48 VLCC equivalents due for delivery. However, the disruption anticipated from retrofitting, possible increase in Iranian tonnage exiting the trading fleet and further prospects of scrapping should all help offset this. This is the first upgrade in our traffic lights since Q2 in August of last year.Elsewhere, demand remains robust. The IEA retained a 1.4 million barrels a day forecast of oil demand growth for 2019 for over 9 months now. And the supply world, despite the OPEC cuts, we anticipate will recover progressively during 2019.With that, I conclude our prepared remarks, and I pass you back to the operator. Thank you.
[Operator Instructions] And today's first question comes from Jon Chappell with Evercore.
Hugo, I wanted to focus both of my questions on strategy as you transition to the CEO role. I know you said in the press release that there's no change to the strategy, but bear with me anyway.So the first one, I feel like I ask Paddy this almost every conference call, but your liquidity continues to rise. The market continues to strengthen. Asset values are also moving up as you pointed out. So as you think about entering the next 2-year period of hopefully continued appreciation in asset values with liquidity that's approaching $800 million, how do you think about prioritizing that liquidity as you position Euronav to this next phase of the market?
Yes. Thank you, Jon. A very good question. I think that history can tell you what we're going to do with excess liquidity especially when we are a positive freight environment, i.e., it's capital allocation. We've been very generous in dividend -- in dividends in the past. You know that we have a fixed dividend policy, but that is the minimum dividend that we intend to distribute. And so when we have excess cash, we will distribute more dividend.And of course you've seen that we were very active in share buyback. Of course, share buyback is another kind of tool. And that's a tool that we use when we feel that the share price is significantly depressed compared to a net asset value. So it's going to be a mix of both, and we will make the analysis every time we ask ourselves the question of whether we pay a dividend or whether we do -- we should do more share buyback.
Okay. And you feel the leverage is appropriate then?
Yes. Around 50%, it's a -- it is definitely appropriate, yes.
Okay. The second strategy question then is around the IMO 2020 preparation. Now I'll assume that you're still not moving forward with the scrubber path, but if that's changed, please let me know. But more curious about the storage strategy that you put in place. I mean we've read about the 1 ULCC, that story. And I just wanted to be clear, are you using the storage strategy for your own book, your own VLCCs and Suezmaxes? Are you looking to take advantage of an arb with third-party operators? And this bunker inventory approaching $42 million in the first quarter balance sheet, is that the type of number we should be looking at from a working capital perspective? Or is that just kind of the beginning stages and has the ability to move up significantly?
Well, our strategy on IMO 2020 and certainly retrofitting scrubbers hasn't changed, i.e., we never said that we were against scrubbers, but we were against placing such a big amount of CapEx before knowing what the spread is going to be. So obviously, we're going to monitor what's happening towards the last quarter of this year and then, of course, over the course of 2020. If we need to change our strategy, we will do that. So we feel that's a much better way of playing the IMO 2020 new regulations than any other way like first spending the capital and then hoping to get a return.As far as the -- well, the -- what you're seeing in the press I think was a lot of speculation. We have taken a number of initiatives around the new regulation. And first and foremost, it is about the safety and the quality of the product that we intend to use. Whenever you have to use a new fuel, there are some risks and uncertainties around using them onboard your ships.Last year, we have seen a number of bunker problems. We certainly don't want to go back to those issues when we are shifting fuel from HFO to a compliant fuel. And so we've done a number of things from an operational perspective. And it's true that we have both certain what we could call compliant fuel, but that was really to test them. We have accumulated certain quantities in the ship that we've placed in Malta, and that's just for logistical reasons.And we continue to elaborate on a strategy. But unfortunately, it's a little bit too early to tell you exactly what we are doing because we would like first to complete that and then announce to the market what we have done.
Okay. So just to be clear then, that $42 million of bunker inventory in the balance sheet, that's essentially you testing different blends of fuels and your preparations for running your own ships.
Yes. There is a lot of different products there indeed.
And the next question comes from Greg Lewis with BTIG.
Hugo, could you talk a little bit more about what you're seeing in the asset price market? Clearly, you're signaling that the market is strengthening. Just -- why do we think that is? Is it a lack of buyers? Is it -- I'm sorry. Is it increased buying interest or the lack of sellers? And on -- and piggybacking on that, how should we think about Euronav managing the fleet as we look at some of -- maybe some of the older vessels in your fleet into a rising asset price market?
Yes. I know, of course. Well, I think that every time the market is looking good, and that's definitely the case now, you bring more interest to the market, be it from existing participants or potentially new participants. And so you build some sort of pressure on pricing. And obviously, you see the value is going up, and that is assessed by the brokers. And it's on the back of some transaction but not too many.I think that another very important element is what the newbuilding price is at the moment. And as you've seen, the yards are asking more and more for a newbuilding VLCC, be it with or without a scrubber. So all of that put pressure on the value and pressure -- I mean positive pressure, of course.And what we have tried to demonstrate in the deck is that there's a high correlation between asset values and the share price. And that's something that maybe the investor community has not paid attention enough to as what we hear and what we read as comments from the analysts is mostly related to the earnings. So we believe that it will continue to go up as it does in every cycle.And as far as Euronav is concerned, we always try to take advantage of high values to dispose some of our older vessels, but that's not the only strategy. As you know, most of the VLCCs that we have sold in the past were sold for a conversion project. Those projects have an additional advantage that the vessel is leading the fleet.So we will continue to look at those opportunities. But of course, if we see interesting prices for our older ladies, then -- and then of course, we'll definitely take a look and have an interest in disposing of them.
Okay. Great. And then just on Iran, as we think about trade flows and the Iranian fleet, I mean -- I guess like how should we be thinking about that? I mean is that a double positive in that maybe we get some ton miles, and those Iranian vessels simply go idle? I mean in your experience in the past, what happens to those vessels when Iranian volumes are curtailed?
Well, I'm not sure that you can really compare the current sanctions with the previous sanctions. I think that the attitude is very different. And as you've seen, the waivers will be limited in time, which means that the Iranian fleet is unlikely to be used for transport and to a very limited extent.I think the last time we had the sanctions, that was, well, under the previous President. The fleet was composed of 40 vessels. About half of them were used as storage, and the other half was still used to transport crude oil.I think that this time around, we are looking at a fleet of 38 vessels. About half of them are already being used as storage currently. And we anticipate that the other half, at least part of it, will be used as storage because the transportation would be very limited.So I think it is indeed potentially a double positive, first of all, because the vessels are not trading, i.e., not transporting oil and leading to trading fleet. And then obviously, that oil has to be replaced by some other sources. And when we look at the potential source that could replace it, obviously there is a large part that can be replaced by OPEC countries located in the same region. But there's also a big potential coming from the Atlantic, and that's where the ton miles are increasing.
And the next question comes from Amit Mehrotra with Deutsche Bank.
This is Chris Snyder for Amit, following up on the capital allocation conversation. You guys sold a couple older vessels during the quarter, putting out a balance sheet that's pretty under levered, and you obviously have a strong liquidity position. I know secondhand prices have been rising, but should we expect you guys will still be players in the S&P market over the next 12 or 24 months?
Well, we never exclude anything, and we certainly can do a small transaction like we did in the past. I think as far as the biggest transactions are concerned, and certainly if it was an acquisition as opposed to a merger, we believe that now the pricing are probably too elevated for that. I think the last 2 big transactions that we did were at the bottom of the cycles, their respective cycles. There was a March transaction in 2014 and more recently last year, a January transaction.And so we intend to follow that strategy. I think it's a very good strategy to buy cheap and then enjoy the assets when the markets are rising. But if it comes to a couple of ships here or there, obviously that depends on the circumstance at that point in time. But it also depends on where our share price is and then of course where the liquidity position is.
Okay. Fair enough. And then kind of turning over to IMO, it feels like IMO 2020 will need higher crude throughput to offset potential waste in the refining project -- process. How are you guys thinking about this in terms of how it relates to crude tanker demand and maybe how much additional refinery throughput we need?
Well, I mean first, it's a little bit difficult to estimate exactly how much more throughputs there will be. But we read several studies, amongst which the [ Brahma ] one, which suggests that it could be anywhere between 200,000 and 600,000 barrels additional throughput. So that's obviously a big positive for us now. We need to see where it's coming from, where it's going to. But anyway, it seems that the potential is upward and not downward.
Yes. And just quickly following up. I mean IMO will also probably bring new crude trade flows to the market. Are there any routes in particular you guys are particularly bullish on? And can you just maybe talk about what vessels would see the biggest benefit from that?
Yes. I think that everybody is pretty bullish about the potential export out of the U.S. I mean it has been rising over the last couple of years. We understand that there's a lot of infrastructure being put in place so that all the oil, which is very light quality, can be brought to the Gulf Coast and then can be exported to the international market.It seems that a lot of it will go to the Far East. So that's very long distance, long haul, and that should bring additional ton miles. That's definitely a region where everybody is looking at, but I think that it's very hard for any participant in the market to forecast what the trade change are going to be. I mean it seems logical that the older refineries are going to be in need of more light oil because it has a lower sulfur content, whereas the more sophisticated, more modern refineries, certainly the ones in the U.S. or the more recent one built in the Middle East or in the Far East particularly in China, can crack anything.But so the -- I think it's something that we will look at when it happens because there are a number of refineries around the world that have not yet announced what their policy will be. When we speak to refiners, they certainly tell us that the feedstock mix is going to change because of IMO 2020.
And the next question comes from Michael Webber with Wells Fargo.
Hugo, I just wanted to look back and clarify, just a follow-up on 2 guidances earlier. First to Jon's question on your storage play. I know you can't get into details now, but in terms of what you're working on, do you envision that potentially pulling any additional tonnage out of your fleet?
Why not? I mean everything is possible, but we also are expecting some third parties to be interested in some of the vessels that we have in our fleet. Obviously, we have the TI Europe, which is also a 3-million-barrel-capacity vessel that is available for storage. You have to note that since 2008, both of the unit -- of those units, be it in our hands or in the hands of INSW until we acquired it from them, were used as storage. So this is something that comes and goes, and we are definitely open for businesses.Now when it comes to conventional VLCCs or conventional Suezmax, that would be a decision we will take in due course and when we see the rate -- or time charter rates that are being offered. I mean it is function of the oil being in contango or backwardation as well as the fuel oil being in contango and backwardation. I think that we can anticipate a lot of storage maybe in the second half of the year ahead of IMO 2020, just to make sure that from a logistical perspective, the product is available to the entire shipping industry on time and on location. But once you go over January 2020, you may have requests for HFO if the production is in excess of the demand at that time.
Yes. Now that sounds well. It's interesting and a little bit differentiated, so I'm just trying to get some more context here. And then just to follow up quickly on Greg's question on Iran. In terms of that NITC fleet getting pulled out and more of it put on the storage, is that something you think we would likely see sales in the physical market in the back end of Q2? Or do you think that actually gets filled mostly in Q3?
Well, as we said, I think half of the fleet is already standstill there, and you can monitor that. As far as the rest of the fleet, well, the waivers are expiring in May. So you should see the impact of that probably in, say, end of Q2 and then definitely in Q3.
Okay. All right. And then just one of my own if you don't mind. Just within your deck, I think Slide 9, just kind of -- I think you referenced it before, just kind of asset values and equities. And the best charts always tend to be the simplest. So just kind of plotting out those out -- the newbuild prices and equities is just kind of interesting to review.If you look at that chart, there's clearly kind of the pre-2009 period, where you saw the ramp in China during the WTO. And then you've got kind of the post-2009 market with some firmer periods in 2010 and 2013 and 2014.And so I guess my -- I guess kind of quite simply, do you -- when you look at IMO 2020 and what that can do to the potential earnings power of your assets and the asset value, do you think that's more akin to some of the peaks we've seen post 2010? Or do you think that's more akin to what we saw kind of pre-2010 in and around the super cycle?
Well, as you know, and it's not because I'm going to become the CEO that we're going to change that, we don't have a crystal ball. And we are humble enough not to forecast what the TCE rates will be. We're very hopeful that it could be as big as 2008 was, but I think we have to be realistic. And when I say realistic, we should be very happy if we hit the rates that we had in 2015 and 2016. However, I do believe that IMO 2020 is a big change for our market. So there will be a lot of volatility in 2020, and normally volatility brings higher earnings.
Yes. Okay. Yes, anytime you go back to 2004, kind of the 2009 period, it's just kind of a smacks you in the face when you look at those charts. So I'm just trying to get some context there, but I appreciate it.
And the next question comes from Chris Wetherbee with Citi.
I wanted to follow up I guess on that relationship between the steel prices and the equity price. I guess you made -- you've made some progress with the buyback. I just wanted to make sure I understand your comments earlier in the call about how you're thinking about capital allocation as we move forward. Why wouldn't it make sense to be somewhat aggressive on the buyback here in the relatively near term when you see this sort of gap blowing out? Just wanted to get a sense and make sure I understand from what you were saying before about how you're going to be treating the buyback in 2Q and 3Q and beyond this year.
Yes. I mean the decision we took I believe was -- the end of December, around '17 or '18, was a very easy one because the gap was more than 20% between our calculated NAV and what we saw on the screen share price. I think that we have recovered from this dip down that we had. It doesn't mean that we're satisfied with the share price at the moment, far from it. But in the meantime, we've had a very aggressive program, a $20 million spend in I would say one go almost. It is the most aggressive program we have had in the history of the company.What are we going to do going forward? Well, it depends on the circumstance. We also have to see that we went through a number of closed periods. So it can explain also why we were not more active as we saw the share price recovering. I wish we could have been more active. We certainly have the capacity to buy back more shares, we have the liquidity and we have the authorization. But again, that will depend on the circumstance at the time of taking the decision.
Okay. But we still see a gap. Even at USD 9.45, you still see a gap between where the steel prices are and where the equity value is.
I agree with that comment.
Okay. Got it. That's helpful. And then when we think about the availability of new fuels, I guess I wanted to get a sense of how you think about that. When should we see some of the transition to IMO-compliant fuels? Is that going to be 3Q? It certainly doesn't feel like you have to wait all the way till 4Q. When did that start to show up I guess in scale at ports?
Yes. I think that will depend on every company and the positioning of the vessels because you need to switch fuel on the 1st of January. So obviously, you need to burn whatever you are left from HFO, and you need to make that calculation on a ship by ship basis. You also need to prepare the ship for the transition to the compliant fuel, but it means that you will have to carry compliant fuel certainly in the last quarter. And depending on the length of the voyage, that could start at the late Q3. But most of it should be done in Q4, whether it's for Euronav or for the rest of the market, because it is a cliff deadline on 1st of January. So you have to carry both fuels. You'll have to purchase it in advance of January 2020.
Okay. Okay. That makes sense. And then I want to touch base on Slide 10, where you show dry docking for scrubbers getting in advance of IMO 2020. If you were to extend this chart out into 2020, how would those green bars look I guess in the first half? How much spillover do you expect from a dry docking sort of outage of the fleet in the first half of next year?
Chris, it's Brian Gallagher here. Yes. It's a very difficult number to give any sort of accuracy on. If anything, I think our view would be you're going to see, as you correctly say, some spillover because all of the noises we're hearing from those that are fitting scrubbers are that they're either getting pushed back or they're going to -- people are going to err on the side of caution because their dry docking dates in order to get a scrubber retrofitted are very, very firm. And they have been --they must make those particular windows.So we would expect this to certainly overspill into Q1 and into Q2 as well, probably to a similar magnitude to the number you see there for Q4. But again, as you will understand, this is -- there's not a lot of data points here, and there's a lot of sensitivity around it. But one view we've always had as well is that we would expect the retrofits and the repositioning to probably more likely increase in length. So this impact could actually be understated from the numbers we've got here, but this is going to be a very dynamic set of circumstances.And also what we're also trying to show on Slide 10 is the fact that we've delivered what we think is a very respectable number in Q1 certainly for a VLCC fleet. As the year progresses, a lot of those headwinds start to unwind and become tailwinds, of which the IMO retrofitting and taking capacity out of market is one.
Yes. Okay. That's super helpful. And if you'll just permit me one more if you guys want to make sure I understood a comment also earlier relative to scrubbers. I feel like there might have been a bit of a nuance in the way you answered Jon's question about sort of your strategy. I think it was sort of CapEx spending and fully understand what the relationship between the fuels might be. As we get closer to sort of maybe understanding what the relationship and the spreads between the fuels might be, is there a potential that your sort of approach to scrubbers might change? I just want to make sure I understood that there was nuance to the comment you were making there.
Well, I don't think there is any nuance compared to what we said in the past, be it competitive, be it in different presentation we've had. The reason why we were reluctant to retrofit all vessels is because we had to spend the capital without having any clue of what the return will be. And that's what we have said I think for more than 18 months now.So obviously, once you go over the hump in January 2020, you see where the spread is. You see where it will stabilize because I don't believe for a second that in the first couple of months or maybe a couple of quarters, it will be stable. I think it will be relatively healthy. Once it's stabilized, you see what the spread level is, and from there you can take an educated decision. And I think that from a risk perspective, playing with capital is much more reasonable to do that than spending the capital upfront.What we have also mentioned is that if we see that there is a significant drop in HFO, then we can very well store it and benefit from the low price of HFO and then retrofit the vessels, which gives you an additional assurance on your return of capital.
And the next question comes from Erik Hovi with Clarksons.
So regarding the right thing in secondhand values in terms of the freight rates, what is your input from the charters? And are you seeing more upward pressure in the freight market? And do you believe the charters are beginning to pay for longer durations? Sorry, when do you expect the charters to begin to pay for longer durations?
Well, we have certainly seen more inquiries in the market, but they continue to be for a very short period of time, so 1, 2 years from times -- times 3 years. But that's more linked to what I would call projects, i.e., people ordering ships and fitting them in a contract that was signed in advance. I really like what we did last year with those Suezmax, but yes.As far as the rates are concerned, it is going up, and I would say that's totally normal. It's normally correlated to the spot market especially when you anticipate to have a couple of -- or more good years ahead of you, but it's nothing extraordinary. And it's certainly nothing that for the period of time that is proposed would be very attractive to us, certainly not on a big scale.So we'd like to see where the spot market is going, how it impacts the time charter market and then more importantly, over which period of time the charters are prepared to sign a contract. We're also missing the fact that the industry has somewhat changed, i.e., most of the oil majors out there are becoming short term. And that is because they have made some decisions in terms of what were the priorities of those companies, i.e., shifting from a more E&P perspective to a more trading perspective. And then obviously, if you have more of a trader mentality, then you focus on the short term and not on the long term. So we don't know if it's going to happen.
And the next question comes from Randy Giveans with Jefferies.
Congrats again on the promotion, Hugo.
Thank you, Randy.
So a quick question on Slide 11. You upgraded your vessel supply outlook. So now what is your, I guess, updated fleet growth assumptions for 2020? I know you gave a detailed breakdown in -- on Slide 10 for 2019, but just kind of looking forward next year. And then also if you ordered a newbuilding today, will you still be able to get that by the end of 2020?
Randy, it's Brian Gallagher again. Well, with our fleet growth assumptions for 2020, we expect to see it somewhere in the 2% to 3% range. Obviously, we've got to get a very heavy delivery schedule this year, although this is going to be offset by some temporary IMO retrofits. And then obviously, as Hugo said earlier, some of the Iranian tonnage is coming off. So we think that that's manageable in terms of the context of 2020.And the reason we're changing the vessel supply, albeit still to an amber, it's not -- it's only come from a mix of red and amber to amber. But to flag it is the -- obviously, we feel these other drivers of temporary supply being taken out of the market place for retrofitting, the Iranian situation. And also whilst we would expect ships maybe not be going to scrap, we would expect to see quite an active element of the older part of the fleet going into storage, so therefore leaving the active trading fleet. All of those are very positive and quite meaningful in terms of pushing back on that vessel supply. That's the reason for the change.
Got it. All right. And then if you can just kind of clarify the remaining authorization on the current share repurchase program.
Yes. So we have an authorization to repurchase up to 20% of our capital. And we have used, I believe, now 1.3% or 1.4%, so there's ample capacity. Obviously, don't expect us to buy back 20%. But it's just to say that from an authorization perspective, we have everything that we need for that.
And that's 20% of your market cap.
Well, that's 20% of the issued capital. So it's the same, yes.
And the next question comes from Ben Nolan with Stifel.
So I -- my first question relates to something -- actually, I saw this morning that you guys were part of a group that is pushing the IMO to set the maximum speed or in effect require shipping companies to slow steam. Could you maybe talk through that a little bit and just whether or not that's something that you think is realistic in the more immediate term and -- or that's just kind of a longer-term solution?
Indeed. I mean we were actually 1 out of 110 shipping companies to sign this letter for the IMO 2020. Discussion will take place in May. You may recall that around IMO 2020, we already mentioned that we were a little bit worried about IMO 2020 simply because it meant that ships were going to emit more CO2 at the time where the IMO has signed the Paris agreement, which basically means that by 2030, you need to reduce your CO2 emissions by 50% -- no, sorry, by 30% -- no, sorry, by 50% and then by 2050 by 70%. So it's -- it is a huge challenge for the shipping industry altogether.I think as far as the slow steaming is concerned, that's a relatively quick way of reducing already dramatically the CO2 emission because as you know, those emissions like the consumption of the fuel is exponentially correlated to the speed. So if there was some sort of speed limit and certainly speed reduction, you would have already seen the CO2 emissions being reduced dramatically.Is it a long-term solution? Absolutely not because this is not enough. So as far as the long-term solution is concerned, you absolutely need to look at the type of fuel that you would consume. A lot of people are talking about LNG, which again is a fossil fuel, so it may be harmful as a transition. But ultimately, if you want to go down to 70% reduction, you're going to need to find alternatives.And our team as Euronav, as one of the leader of our industry, we want to make sure that the IMO and the shipping industry all together can participate in the CO2 reduction. And so that's the reason why we have signed the letter, i.e., committing ourselves to participate in whatever research and development exists out there and that we find interesting in order to meet those requirements.Now of course, if you think about the slow speed, I guess that everybody can understand that it will reduce the supply. And so the market needs to adapt in both ways and make sure that the supply that remains after adapting the speed is enough for the demand that there is out there in the market. But overall, it's obviously very positive for the environment and for the business.
Okay. But is it something that you think could happen, I don't know, in the next 12 months, or is this proposal a little bit longer dated I guess was the question.
Well, it's a very good question. I think that it will be discussed at the May meeting. But if you look at the deadlines, there are intermediary deadlines in 2030. It may seem like in 11 years from now, but quite frankly, you need to do something almost already. Maybe we needed to do something yesterday in order to meet the requirements of 2030.So I don't believe that we have the luxury of waiting. And I think that's why you've seen this idea of slowing down the ships gaining momentum. You understand how the IMO works. There's a lot of voices in those meetings. And obviously, a number of countries have already voiced their favor for slowing down the speed. So it could be that some decisions are taken already in May.As far as from when they are applicable I think will take more time because it's one thing to take decision. It's another one to apply it and to see how we're going to monitor it in the market and make sure that everybody can adapt the new regulation, speed regulation.
All right. Okay. All right. And then I guess my second question relates around buybacks. Obviously, that's been a topic of the call. But I notice that -- I believe all of the buybacks that you have done so far have been on the -- your listed shares. Any reason for that? Or how are you thinking about sort of U.S.-listed versus Euro-listed float and what you're doing there?
Ben, it's Brian Gallagher again. There is no great science on it. It's -- we obviously have shares which are fully fungible between the two exchanges. We have a bit less volume in the European line, and we're just trying to sort of rebalance and refocus some of that. So we have the option and we have the opportunity to buy in both lines. It's just we've taken that opportunity. We've been trying to rebalance a little bit from the European line, nothing more than that.
Okay. Perfect. And then if I can sneak one in, the Suezmax rates are a little less than I thought. And it kind of looks like they tailed off from what you had booked at the beginning of the first quarter. Any color about just the Suezmax market or anything that might be happening there or how you are positioned within it?
No. I think it's a little bit too early to see if there is a more permanent disconnect between VLCC and Suezmax. I mean history shows that the 2 segments are heavily correlated, and we believe that in the future they will also be correlated. I think that there is maybe a time lag between the two, but it's too early to come to conclusion.
And the next question comes from Fotis Giannakoulis with Morgan Stanley.
Hugo, you mentioned about the possibility of buying and storing fuel oil if price of fuel oil collapses. I'm just trying to understand how much capital are you planning to devote into that. Is this going to be fuel oil that you plan that you're potentially going to buy for your own use, assuming that you install a scrubber, sort of this is going to be also for trading purposes, buying low and selling high at a later stage?
Fortis, that's a very good question. I think that the answer will be when we do it. We said it was a possibility. And we said that it was a possibility that we would install scrubbers if we see that the spread or the trend in spread remains wide on a permanent basis or at least for the foreseeable future. I think that if the spread remains wide, then we will install scrubbers. And obviously, we will use what we've stored for that purpose.I think that trading is another business. It's certainly not our core business, but it's something we may take up and have an interest in. But that would require a more sophisticated platform in terms of making sure that we are a solid participant in the trading market or that we join forces with someone else.As far as the capital that we could allocate there would -- entirely depends on the amount of HFO that we want to buy and store. And of course, it depends on the price of the HFO at that point in time.
And can you remind us right now, based on what you're hearing in the market, how many VLCCs or what percentage of the VLCC fleet will have scrubbers installed? And how long would it take if you would order a scrubber today until the installation is completed?
Yes. We believe -- I mean the numbers that we have seen in market that was both from DNB and from Clarksons that by the end of 2020, there will be 230 vessels with scrubbers installed. And that's a mix of newbuildings and retrofit, but that's by the end of 2020. I think that the market is a little bit uncertain about the number of ships that will have scrubber fully installed and fully functional for the 1st of January 2020. And the reason why the market is uncertain is because a lot of those companies have announced programs to retrofit, but they have not announced over which schedule, over which period they tend to install them. So the statistics is more coming from the order book from the scrubber manufacturer.The -- in terms of the second part, Fotis, on -- in terms of if you wanted to fit scrubbers now, I think obviously it's very difficult in this calendar year given the capacity. But clearly, there's been a huge increase in the amount of capacity, but it would also be a question of quality.A lot of those new entrants are very unproven, but certainly I think the -- our view would be is that from 2020 onwards that the opportunity to retrofit is a different proposition than it is today. Well, it's certainly a proposition where you can take the experience of the others and use it for your own account. You can see what is working, what is not working. There are some big difference in pricing according to each manufacturer.And as far as the time line is concerned, as Brian said, I mean obviously we're not looking at installing scrubbers before January 2020. And that fits perfectly with the fact that today, it would be almost impossible because everybody's rushed the yard to make sure that they were ready around that date.Once you pass the 1st of January 2020 deadline and if you consider my earlier comments, I'm saying we first need to see where it's stabilized, and that's not going to be in the first couple of weeks or a couple of months. It seems that the yard capacity in the manufacturer's order book is going to be somewhat lighter, and therefore the lead time will be much shorter. So we feel that there's a lot of advantages in waiting.
Thank you. And as there are no more questions at the present time, I would like to return the floor to management for any closing comments.
No. Thank you very much, all. Thank you for participating to our earnings call.
Okay. Thank you so much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Thank you.