“The oil market? We are experiencing a particular moment, highly controversial: the collapse of the oil barrel has caused a sharp increase in consumption, especially in China, India and Africa. But not all commodities proceed in the same way: from a barrel of crude oil we obtain petrol, whose consumption is rising, but also diesel which is suffering”. So says Paolo d'Amico, president of d'Amico International Shipping, a leading company in maritime transport and a major global player in the tanker market.
A sector that is booming for now, judging by the group's results, the best since 2009: consolidated net income of 54,5 million dollars against a loss of 10,6 million at the end of 2014; ebitda of 97,1 million dollars, compared to 32 million in 2014. But it is not easy to navigate the waters of a turbulent market, in constant evolution between new competitors (electric and/or hybrid cars) and unstable freight rates, on which the risks of recession in China are reflected, the consumption boom in Nigeria, the new world map of refineries, not to mention the USA: a few years ago the terminals were designed to receive the gas arriving from Qatar, today investments are to export.
In this context, d'Amico Shipping had the merit of anticipating market trends: the increase in consumption, the new geography of producers and outlet markets and, consequently, the increase in demand for those who transport refined products. But how long will the current trend last? Won't electric and hybrid cars erode the primacy of petrol? And won't the environmental emergency impose course correction? Paolo d'Amico, the other day in Piazza Affari to meet analysts, for the occasion also spoke about this as well as the good prospects for 2016, which opened with the recovery of freight rates.
What has changed in the market after the collapse in oil prices?
“It's a multi-coloured picture: petrol runs, diesel suffers. In Europe, practically the only market where diesel is used for cars, consumption has grown less than elsewhere. Furthermore, thanks to the crisis, truck traffic has dropped almost everywhere while agriculture suffers. Meanwhile, with the collapse of the price per barrel, petrol consumption has grown exponentially from China to India and throughout Africa”.
Africa too?
“The market is booming. Nigeria, in particular, has discovered the automobile. Then there are the traditional markets: in the United States the demand for petrol has exploded thanks to the fact that the benefits of the drop in prices there are immediately reflected in the price at the pump. Unlike what happens in Europe where, as we know, excise duties and taxes weigh on fuel, the fluctuations of the exchange rate with the dollar and the costs linked to a more expensive distribution network”.
What determines this different speed?
“Refineries are maximizing gasoline production, but diesel inventories are growing. For now on the ground. But there are already cases where ship delivery times are getting longer. We'll see what happens in the summer: I'm quite confident that the resumption of agricultural activity and pleasure boating will help balance the situation. But it will take years to dispose of the surpluses”.
What are the other consequences of falling prices?
“Low oil prices have also driven up refining margins. But meanwhile refining capacity has moved away from the centers of consumption. Hence the growth in the demand for new vessels to serve the end markets from the new refineries: the most modern and efficient are now located in the Persian Gulf".
Hence a great opportunity for your sector. Or not?
“We had the merit of launching a growth plan in good time, ordering 22 ships at a time of low prices: ten already in operation, 14 already leased at attractive prices to various oil majors and to one of the most important refining companies. Thus we can have a young fleet, with an average life of 7.8 years against 10 in the sector, made up entirely of ships that have a market value higher than book value. Furthermore, there are not many shipyards that build ships of this type. Several Japanese shipyards have renounced due to costs imposed by environmental protection legislation. There is a construction site in China, 5 in South Korea, 3 in Japan. However, none of them is able to deliver until 2018”.
This strategy required considerable financial effort…
“We have invested about 750 million dollars. But I like to point out that in recent years we have only asked for 60 million from the shareholders in the form of a capital increase. Net debt is $422,5 million."
Let's try to play the devil's advocate: what risks could the drop in oil consumption entail? Let's think of a world of electric cars.
“I think I won't have time to see the true impact of this revolution. Let's think of the Italian market: the average family today has two cars, one for the family, the other to be used in the city for shopping. This is the potential reservoir for electric cars. I doubt that sales volumes, at least in the near future, will affect our business. Also because the race for cars has just begun in a certain part of the world. In any case, we have already set ourselves the problem of identifying other activities”.
Are you also thinking about natural gas?
“We look at this market, without hiding the difficulties. Investments for a ship in that sector are much higher, in the order of 200 million dollars. Furthermore, more ships have been built than regasifiers to supply. But we can also focus on other sectors. We have already brought edible oils to India and Pakistan rather than palm oil for cosmetic use. There are 350 products suitable for travel on our tankers ”.
Have you thought about hedging your oil risk?
“Not for 2016: crude oil will remain at these levels”.
