HAMILTON, BERMUDA -- (Marketwired) -- 08/28/13 -- Nordic American Tankers Limited (NYSE: NAT)
In my letter to you this past June, I discussed how an excess supply of tonnage hurt the tanker market during the second quarter of 2013. The daily IMAREX index, which is a good measure of the level of the market, was on average $11,500 during the second quarter. June, in particular, was weak, with a time charter equivalent for suezmaxes of $7,500 per day.
The company is in a solid financial condition. This is demonstrated by the fact that as of June 30, 2013 our net debt is about $4.4 million per ship. In comparison, at the end of June 2004, at the time when the company turned into and operating unit, the net debt was about $8 million per ship. Cash on hand, net working capital and undrawn portion of our credit facility is $330 million, representing our financial liquidity reserves June 30, 2013. This allows us to plan for further growth.
In July and August the situation has improved, signaling that results for the third quarter should be better than those for the second quarter. Since July 1st, the IMAREX rates have been above the second quarter level. Towards the end of August weakness is again seen. The actual results for a fleet may differ from the quotations of IMAREX. In an improving market there is a time-lag of two to three weeks before we can benefit from the higher rates.
Crude shipments to the Far East are a driving force in the tanker market. Stable suezmax shipments have been undertaken from the Middle East region and West Africa. Recently, the differential between the Brent oil price and the WTI (West Texas Intermediate) oil price has narrowed, which impacts seaborne imports of crude oil into the US positively from our perspective. This is because transportation costs on our tankers are significantly lower than shipments by rail or pipeline, so a tight spread in prices makes the delivered price of an imported barrel of oil cheaper for the refineries. Typically, geopolitical tensions, as for instance in Syria, Egypt and Libya, tend to create uncertainty which may cause unpredictable volatility including spikes in the tanker market. The order book for new crude oil vessels is decreasing sharply and starting in 2014 we expect only a handful of newbuildings to enter the suezmax market. In the near future it is a question whether we shall see an improved market this autumn and the traditionally stronger winter market.
We have had several vessels in drydock this year because it is mandatory to go through the special surveys when ships are ten years old and again when they turn fifteen. For a 10-year special survey the costs are about $2.5 million per ship; a 15-year special survey could cost between $2.5 million and $3.0 million. In the short term, drydockings hurt us since those ships are temporarily out of service, but in the long term keeping our ships in top technical condition pays off. We do a lot of work for major oil companies, and they are among the most demanding players in the tanker industry. Our work to improve technical standards and enhance safety never stops.
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