Scorpio Tankers(US:STNG)2022-07-28 16:32Financial Data and Key Metrics Changes - Scorpio Tankers generated its largest quarterly profit in the company's history, with a significant improvement in investment quality [9] - The company reduced outstanding debt by $511 million in the first half of the year, with a pro forma cash balance increasing by $360 million to $591 million [9][10] - Pro forma liquidity could reach close to $700 million by the end of Q3 if average rates are $35,000 per day [11][31] Business Line Data and Key Metrics Changes - The fleet achieved a time charter rate of $44,800 per day in Q2, with expectations of generating almost $1 billion in free cash flow if rates average $35,000 per day for the year [32] - The company has booked 44% of the days in Q3 at a rate close to $45,000 per day [11] Market Data and Key Metrics Changes - Global inventories remain near historic lows, with demand for refined products expected to increase as the global economy reopens [12][25] - Seaborne exports of refined products are expected to increase by an additional 500,000 to 1 million barrels per day by the end of the year [24] - The product tanker order book is at a record low, with only 5% of the existing fleet on order [27] Company Strategy and Development Direction - The company's top priority is to reduce leverage and increase liquidity, with a focus on improving the balance sheet [13][30] - The management believes that the current market conditions will be sustained due to low inventories and constrained supply [12][25] Management's Comments on Operating Environment and Future Outlook - Management expects refined product demand to continue increasing, with a projected increase of 2 million to 4 million barrels per day through the end of the year [24][73] - The global market is anticipated to remain short on diesel due to unresolved refining capacity deficits [40] Other Important Information - The company has declared repurchase options on six MRs under sale leaseback arrangements for $95 million, contributing to debt reduction [10][31] - The company has seen a structural shift in refining capacity, moving further away from consumers and closer to wellheads, which increases seaborne exports [21][22] Q&A Session Summary Question: Impact of recent refining margin changes on the market - Management indicated that while refining margins have decreased recently, they remain healthy and logistics issues globally will play a significant role in the tanker market [46][48] Question: Plans for capital allocation and shareholder returns - Management emphasized the importance of reducing debt first before considering stock buybacks or dividends, with a focus on maintaining a strong balance sheet [60][64] Question: China's refined product exports and market impact - Management noted that while China's refining utilization is lower, there has been a steady supply of products, particularly diesel, which could positively impact the overall market [66][68] Question: Concerns about crude demand volatility - Management expressed confidence that both crude oil and refined product markets will remain tight due to a lack of investment in the supply chain [72] Question: Structural changes in the market and asset values - Management confirmed that asset prices are increasing due to strong charter demand and limited new building deliveries, indicating a positive outlook for asset values [79]