Ahead of results from Pyxis Tankers Inc due this month, the high seas of the global shipping market are blowing in its favour.
Like transcontinental trade winds, supply and demand are supremely powerful forces in shipping – and it would not be overly generous to say that both are supportive for the Nasdaq-listed, Greece-headquartered outfit.
The fundamental demand outlook for the shipping of refined petroleum products is usually tied to global GDP growth.
“But our outlook has been supercharged with the war in Ukraine,” says chief financial officer Henry Williams, as market forces have become a major catalyst for product tanker freight rates, benefiting the company’s revenues, profits and cash flow to further strengthen its balance sheet.
Sanctions against Russia moved to a higher level in February with a ban on Russian cargoes within the EU and G7, totalling 27 countries, which also implemented price caps on various refined petroleum products, including diesel, gasoline and jet fuel.
The impact is just starting to be seen, as preparations for the additional sanctions saw major front-loading of demand within Europe, with storage levels rising much higher than normal.
Based upon analyst reports, Pyxis expects during the second quarter, 2023, the temporary stockpiling should substantially dissipate and therefore facilities within the EU will have to source from refineries further away, such as the Middle East, Asia and the US.
This should tie up even more tanker capacity and provide a boost for the legitimate majority of the shipping industry, such as Pyxis, says Williams.
At the same time, Russia will have to find new end-markets and switch to supplying its friendlier countries, which are, as a rule, further away from its ports, and possibly relying on the ‘gray’ tanker market to circumvent the restrictions.
“The reality is that tankers from Primorsk will have to transit to North Africa, or Latin America, rather than Amsterdam, and that again sucks up capacity simply because it's a much longer trip.
If that wasn’t enough, China’s reopening is also expected to contribute to greater tanker demand.
As the Chinese population emerges from one of the most restrictive Covid regimes of the last three years, there has been much made about the massive pent-up demand for what has been called ‘revenge travel’.
“With the release of these heavy government restrictions, the Chinese are getting out travelling about domestically well as well as internationally and that's a key driver,” says Williams.
Pyxis might expect to benefit more than most.
The company owns a fleet of five medium-range or MR2 tankers that typically move refined petroleum products, which includes diesel, gasoline and jet fuel, along with naphtha, which is used in making petrochemicals, as well as being able to move edible oils. Transportation-linked refined products make up 55-60% of cargoes within the sector.
A major shipbroker recently noted that the global shipping industry’s fleet profiles are the oldest for over a decade, with the order book of new ships historically low compared to the overall fleet. The combined effects of inflation and interest rates also impacting the cost of building. A new MR2 now costs approximately $45 million with delivery two years away.
However, Pyxis has a modern fleet, with an average age of 9.4 years following the purchases in 2021 of two ships. The industry average is roughly 12 years with an economic life of 25 years.
“We only deal with eco-ships, typically more modern with less fuel consumption, lower operating costs and lower emissions. We like that. It's more efficient to maintain and run, and our charters like that,” says Williams.
Charter clients range from the likes of major integrated oil companies such as BP PLC, to major traders such as Trafigura and Vitol, to national oil companies, such as Norway’s Equinor and Mexico’s Pemex, to major refiners such as Valero.
“We deal with major, sophisticated clients, who want to see better-performing assets. We have a lot of repeat business.”
At the last update for the quarter ended 30 September, 2022, the average fleet time charter equivalent (TCE) had risen to just over US$29,000 per day from US$7,300 a year earlier, with a 89.6% fleet utilisation rate.
A more recent update in January 2023 showed 53% of available days in the first quarter had already been booked for its ships at an average TCE rate of US$32,500 per day. At September 30, cash totalled US$6.85mln and net funded debt was US$65.5mln at a weighted average interest rate of 5.9%.
That was as of mid-January, before the effect of the new Russian sanctions came in. The results this month should allow the company to provide an update.
Williams says another key differential of Pyxis is its total daily vessel operational costs which are lower than the larger U.S. listed peers.
“We are extremely disciplined when it gets down to spending money. It's our philosophy.”
Also, and perhaps key, management’s interests are closely aligned with shareholders as insiders own over 54% of the company – with the management team also bringing together around 100 years of experience.
“We're not out to grow the company for the sake of growing it,” he says, with the company strategy being to continue to grow the fleet “opportunistically, prudently and accretively”.
Finally, Pyxis shares trade at a significant discount to net asset value, which was last published in November at US$9.03 per share based on the market value of its fleet and balance sheet, and only going to get better as the cash on the balance sheet improves.