Ardmore Shipping to benefit from Europe’s aim to reduce dependence on Russian supply

The product tanker market started on a weaker note in 2022, but firmed up due to Europe’s attempt to reduce dependence on Russian energy supply (including refined petroleum products) against the backdrop of increased tensions between Russia and the West. Vessel earnings of product tankers on key trading routes across vessel classes were on the rise from March to levels not seen in the past two years. The impact of strong freight rates seen in the rally of stocks of product tanker companies over the past five months led to a surge of 181.1% YTD in the Drewry product tanker equity index. Ardmore Shipping’s (ASC’s) stock price also posted a hefty gain of 176.0% over the same period as the company is benefitting from substantially high spot earning of MRs and Handysizes amid very high spot exposure of the company’s fleet.

Although vessel earnings of product tankers are expected to normalise to some extent over the next three months, we expect day rates for these vessels to remain higher than their break-even costs between 2H22 and 2024. Limited growth in supply of product carriers till 2024 coupled with rising long-haul trade of refined products from India, the Middle East and US to Europe will drive the top line and
profitability of ASC which is expected to create shareholder value and support an upside in the company’s stock.