Pappas: We remain optimistic about the prospects of our scrubber- fitted fleet

Greece-based dry bulk shipping firm Star Bulk Carriers has shown immense trust in exhaust gas cleaning systems as a means of complying with the IMO 2020 regulation, having installed scrubbers on a total of 114 of its 116 ships.

Despite certain delays in installation due to COVID-19 disruptions in the supply chain and yard closures in Asia, all 114 ships have had their installations completed and certified.

“As of today, we have completed all scrubber installations on 114 vessels, which are now certified and operational. Since the beginning of the year, despite the meaningful delays due to the coronavirus, we completed installation with minimum delays and have now more than 15,000 running days experience across the fleet,” Simos Spyrou, Co-Chief Financial Officer, said in a conference call.

The company’s fleet is pretty much diverse consisting of 17 Newcastlemax, 19 Capesize, 2 Mini Capesize, 7 Post Panamax, 35 Kamsarmax, 2 Panamax, 17 Ultramax and 17 Supramax vessels with carrying capacities between 52,425 dwt and 209,537 dwt.

Scrubbers have been gaining in popularity due to the earning premiums they were promising owners resulting from the fuel price spread between the HSFO and VLSFOs, which ranged at around $300 per tone when the sulphur cap entered into force in January 2020.

However, with the latest drop in fuel prices, this spread has narrowed significantly, putting to question the investment case into the technology.

Commenting on the dwindling price spread, Christos Begleris — Co-Chief Financial Officer, explained that it still exists.

“And this spread for the remainder of the year in the paper market, if someone wanted to hedge is at $79 per ton. Now, given the very low freight markets, our consumption is lower than what it would have been in healthier markets. But we are still consuming in our fleet, on average, approximately 60,000 tons per month,” he said.

“Therefore, if you assume, on average, 80% days at sea and a 90% capture of the scrubber, which is conservative, given that in the larger vessels, we have 100% and in smaller and medium we have closer to 90%, this is basically an additional revenue of approximately $24 million for the remaining of the year from June until December 2020.”

Star Bulk’s CEO, Petros Pappas remains bullish on the outlook.

“Although the fundamental impact of IMO 2020 has been suppressed due to the demand shock and collapse of oil prices, we remain optimistic on the prospects of our scrubber fitted fleet in the coming quarters. On the supply side, smaller sizes are likely to benefit from slow steaming due to lower scrubber penetration in Capes. On the demand side, we continue to expect Capes to benefit the most from cargo cascade as trade recovers,” Pappas said in the call.

Furthermore, the company hedged approximately 151,000 metric tons of its estimated fuel consumption by selling the 2020 Singapore spread between VLSFO – HSFO at an average price of $214 per ton, out of which 28,000 metric tons at an average price of $236 per ton were realized in first quarter of 2020 and the remaining 123,000 metric tons at an average price of $209 will be realized in the remainder of 2020.

The company has also hedged approximately 24,000 metric tons of its estimated fuel consumption by selling the 2021 Singapore spread between VLSFO –HSFO at an average price of $106 per ton.

“Our next priority has been to increase our liquidity and strengthen our balance sheet through vessel refinancings. As of today we have received credit committee approval on financings that would release up to $27.5 million of net proceeds to be used for working capital purposes and we continue to work with lenders to significantly increase this figure in the coming months,” Pappas said.

Star Bulk reported a net income of $2.8 million for the first quarter of 2020, against a net loss for the first quarter of 2019 of $5.3 million.

Moving forward, there is a great deal of uncertainty when predicting the outlook.

The dry bulk market has been impacted significantly by the pandemic, causing the demand to dwindle as infrastructural projects grind to a halt. What is more, the Baltic Dry Index (BDI) is now hovering around the lowest level in at least 20 years. The index currently sits at 520 index points (1 June 2020), 583 points below the reading one year ago and underscoring the difficulties currently faced by dry bulk shipowners.

“While 2020 trade volumes are projected to contract, the bulk of the negative effect is expected to be concentrated on the first half of 2020. An expected synchronized global economic stimulus should expand trade activity in the medium term, providing opportunities to our company,” Pappas believes.