Navigator Holdings Ltd. (NYSE:NVGS) Q4 2019 Earnings Conference Call - Final Transcript
Apr 03, 2020 • 09:00 am ET
expectation of full utilization of the ethylene terminal and in a move to create a larger and broader platform of handysize ethylene vessels, we announced the formation of the Luna Pool last month. Pool enables us to provide a better service to our customers in the form of flexibility in the deep-sea petrochemical trades where critical mass matters. The pool will have 14 handysided ethylene vessels at its disposal to service various existing and new potential contracts and customers.
The beginning of 2020 started off on a good note with healthy utilization and employment across the fleet. However, as you've heard and experiencing, with the manifestation of COVID-19 virus and its global impact, we started seeing a dampening effect on shipping demand from February onwards.
Manufacturing demand decreased alongside consumer demand, resulting in high feedstock and raw material inventories and price volatility. Many market participants chose not to move cargoes or could not move cargoes during the month of February and March; meaning, less amount of seaborne transportation, which in turn, not surprised me, has impacted our utilization rates. This impact is manifesting itself more in the petrochemical segment due to its association with GDP as opposed to LPG, where handysize cargoes are generally associated with domestic consumption for heating and cooking and thus should be less impacted by effects of the virus.
Somewhat surprisingly though, Argus reported earlier this week that petrochemical crackers globally have yet to reduce operating rates as a result of demand or margin reasons. And despite price fall for their finished products, Argus is reporting that producers are still making a reasonable margin.
With the cracker operating rate holding firm in Europe and U.S. in a weak domestic demand environment, products such as ethylene and butadiene are being exported to Asia as we speak. As an example, Europe exported nearly 50,000 tons of ethylene during the month of March and for East destinations.
Ethylene FOB pricing in Europe and U.S. is currently about $275 a ton and $200 a ton respectively with Asian buying demand hovering about $450 to $500 per ton range.
So, within this range, it still makes possible to justify deep sea petrochemical shipments between the continents, albeit the margins have narrowed considerably over the last two months, making it slightly more challenging.
The slightly positive news is that China is reopening manufacturing site and lifting travel bans, allowing workers to return to their jobs. China manufacturing PMI rose to 52 in March, up from a record low of 35.7 in February. This should stimulate some form of petrochemical demand in the near future. However, it is slightly too early to see the effects of this yet.
And now, I will hand you back to Dave.
We can open the call up for the Q&A, Kaes, if that's okay with you.