Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to today's TORM's third quarter 2018 report presentation. At this time, all participants are on listen-only mode. Presentation will be followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone keypad and wait for your name to be announced. Alternatively, you can submit questions at any time via the webcast. I must also advise you, the meeting is being recorded today on Thursday, the 15th of November, 2018. I would now like to hand the meeting over to Mr. Christian Søgaard-Christensen, CFO. Please go ahead, sir.
Thank you, Ella. Hello, everybody. As usual, we'll refer to the slides as we speak, and at the end of the presentation, we'll open up to questions. With that, please turn to slide two. Before commencing, I would like to draw your attention to our usual safe harbor statement. Slide three, please. With me today is Executive Director Jacob Meldgaard. Slide four, please. As we turn to the presentation of 2018 Q3 results on this slide, I'll hand over to Jacob.
Thank you, Christian, and good day to everybody. We this morning reported, our results, which was an EBITDA of $15 million for the third quarter of 2018, and a loss before tax of $24.5 million, or equivalent to $0.34 per share. Our net asset value remained relatively unchanged at $11.2 per share over the quarter. The product tanker freight rates reached very low levels. Actually, the MR round-trip benchmark has never been recorded lower. This was impacted by a decrease in demand growth and shorter sailing distances. We believe that product tanker freight rates have bottomed out here in the third quarter and into the fourth quarter. We have experienced firmer product tanker freight rates, driven by increasing export activity in the U.S. Gulf and a stronger crude market.
Across all segments, our average TCE rate was $10,598 per day during the 3rd quarter. We look at the spot freight market today, we had, as of last Friday, fixed 61% of our total Q4 2018 earning days at an average TCE of $13,278 per day. Fortunately here, we can see that there is a clear firming trend here in Q4. Our last earning call back in August, we've taken delivery of the final LR2 new build, TORM Hilde, out of a series of 4 LR2s. We've also entered into agreement to sell 3 older vessels, an MR vessel, TORM Neches, and also the MR class, TORM Clara, both built in 2000, and we've sold the Handysize vessel, TORM Ohio, which is built in 2001.
The three vessels are sold for a total consideration of $20 million. A total associated debt of $12 million will be repaid here in the fourth quarter. Before entering the market section, I would like to provide you an update on the IMO sulfur regulations in general and scrubbers in particular. Turn to slide five, please. Friday last week, we announced that we had established a joint venture with ME Production, a leading scrubber manufacturer, and Guangzhou Shipyard International, which is part of the China State Shipbuilding Corporation Group. The joint venture, ME Production China, will manufacture and install scrubbers from factories in China, deliver them to a range of maritime industry customers for both new buildings and for the retrofit on existing vessels. TORM holds an ownership stake of 27.5% in this new joint venture.
We believe that this is a un-unique joint venture at a time when demand for scrubbers is expected to increase significantly. This strategic move provide us with a substantial economic interest in a venture that has the potential to be a large-scale international scrubber manufacturer. It will also result in TORM securing scrubber capacity and, at the same time, obtaining attractive prices for the scrubber investments we have already made, which all have a short payback time. As of today, TORM has committed to install scrubbers on 21 vessels, with a potential for a further 18, bringing the total number up to 39 vessels, which would be roughly half of our fleet.
We have already two vessels on the water with scrubbers installed, and they are expected to give us valuable operational insights here in advance of the remaining scrubber installations, which we have planned in our case for 2019 and the first half of 2020. The CapEx related to the confirmed scrubber orders is on average estimated to be below $2 million per scrubber, including the installation cost. TORM expects to be able to obtain financing for a significant portion of this investment. Slide six, please. Returning to the demand situation, demand for clean petroleum products was impacted by higher oil prices in the third quarter, with lower year-on-year growth levels than in the first half of the year. In the gasoline market, higher prices, coupled with depreciated currencies in many emerging markets, had a negative impact on final consumer demand.
In the diesel market, recent demand growth slowed in the 3rd quarter. However, this is compared to a strong baseline in 2017. Globally, refinery runs reached record high levels throughout the summer, and consequently, refinery margins have fallen to levels below the five year average. With slower demand growth and refinery runs at record levels, global clean petroleum product trade flows slowed in the 3rd quarter compared to the same period last year. In the West, imports of gasoline from Europe to the U.S. Atlantic Coast were strong throughout the quarter, supported by an open price arbitrage for the majority of the quarter. However, trade rates continued to be negatively impacted by reduced imports into Brazil and into West Africa.
This was further aggravated by a reduction in long-haul exports from the West to the East over the summer, although this trend reversed towards the end of the quarter, as the end of the summer driving season in the Western Hemisphere released volumes for exports. In the East, refineries coming back from maintenance in the Middle East and India supported exports to the Western markets, especially in the first half of the quarter. However, the positive effect was again here, partly offset by reduced export volumes from especially China and Japan, due to high refinery maintenance. The impact from newbuild crude tankers cannibalizing on clean tankers remained a factor through most of the third quarter. However, I would say the extent of crude tanker lifting clean cargoes for the maiden voyage has already now slowed, as the freight rates for large crude tankers have increased recently.
We believe product tanker freight rates have bottomed out here in the third quarter. Into the fourth quarter, we have already now experienced firmer product tanker freight rates, driven by the increased export activity in the U.S. Gulf and the fact that we have a stronger crude market. Slide seven, please. Global product inventories have declined during the past quarter and are now below the five-year historical average levels. While continued draws are not sustainable over the long term, price backwardation deters floating storage and also reduces inefficient sailing patterns. Despite a seasonal build in Q3, global clean petroleum product stocks have drawn from the start of the year by a volume equivalent to a loss of potential trade of almost 3% each month. Slide eight, please.
The structural dislocation between demand and export center is expected to continue, and more refined products will be produced and exported from the Middle East to the rest of the world. If we compare the forecasted net capacity additions for Middle East refineries in the coming five years, it translates to a level which is 30% higher than the capacity additions we saw in the previous 5-year period from 2013 to 2017. The structural trend continues, and even at an increased pace. Slide nine, please. As we alluded to during our update on the Scrubber Joint Venture, the IMO 2020 regulation is expected to be a potential booster for the demand for product carriers as it comes into force in January 2020.
For the shipping industry to some, to comply with this regulation, it will be necessary to build and maintain stocks of compliant low sulfur fuels in bunker ports around the world, which may create new and considerable trades for product tankers. At this point, we forecast a potential increase in seaborne volumes for clean product carriers of about two million barrels per day. This is an estimate based on many moving parts, but we do expect the IMO 2020 regulation to have a significant impact on the demand for clean product carriers, and we estimate the potential increase in demand to be around 5% of incremental demand in the product tanker trade. We also expect that the bunker industry will be preparing for this regulatory change well in advance of the first of January 2020 transition date. Slide 10, please.
The product tanker order book-to-fleet ratio is at a relatively and comparatively low level, and we can see deliveries of new tonnage has started to fall. As an example, so far this year, we've seen product tanker fleet growth by 2.2%, which compares to 4.5% for the full year of 2017. The product tanker order book-to-fleet ratio currently stands at 9%. This is low in a historic context.... TORM estimates that a product tanker fleet will grow by an average of approximately 3.4% per annum in the period 2018, 2019, and 2020. Which is down from an average of 5.8% during the period 2015 through 2017. This is a key point to the fundamental positive market development we expect for the product tanker industry.
Slide 11, please. As we've seen in the prior quarters, TORM's operational platform is capable of delivering very competitive TCE earnings. In fact, if we look back over the past 3.5 to four years, we have outperformed our peer group average earnings in 14 out of the 15 quarters. Our ability to perform well compared to peers is a substantial factor, and translate into additional earnings of $15 million in the first nine months of this year alone. I'll now hand it back over to Christian again, for further review of TORM's operational leverage, our cost structure, and the financial position.
Thank you, Jacob. Let's turn to slide 12, please. With our spot profile, TORM has significant operational leverage to increases in the underlying product tanker rates. This is particularly true in 2019 and 2020, when our unfixed days increase as a result of the growth in our fleet. As of 30th September, 2018, every $1,000 increase in the average daily TCE rates achieves, translating into an increase in EBITDA of around $5 million for 2018. This figure increases to $28 million in 2019, and $30 million in 2020. Slide 13, please. Before reviewing our OPEX admin expenses, I just briefly want to touch upon our operating model.
We believe that TORM derives significant competitive advantages from operating with a fully integrated commercial and technical platform, including all support functions, such as an internal sale and purchase team. Importantly, it provides us with a transparent cost structure for our shareholders and also eliminates related party transactions. Naturally, we are focused on maintaining efficient operations and providing a high quality of service to our customers. Even with this trade-off, we are seeing a gradual decrease of 16% in our operating expenditures over the last five years. OPEX are below $6,500 per day for the first nine months of the year, which we find to be competitive in light of our fleet composition. We also remain disciplined around general and administrative expenses, although these can be expected to fluctuate a bit going forward based on the size of our fleet.
In the last year, we have opened up two new offices, carried out a U.S. listing with associated Sarbanes-Oxley preparations, and also invested in areas such as digitalization and business intelligence. Slide 14, please. Looking at our liquidity, we had, as of 30th September, 2018, an available liquidity of $425 million. Cash total, $163 million, and we had undrawn credit facilities and new building financing agreements in place for $262 million. Our total CapEx commitments to new buildings were just shy of $300 million, with $296 million as of 30th September, of which $32 million is due in 2018. The remainder will fall due in 2019 and 2020, as we take delivery of our new high specification vessels.
I just want to note that for the new buildings, the new building CapEx commitments also include scrubber installations. Given our earlier discussion on scrubbers, we have also included an estimate for the outstanding cost related to retrofitting the committed scrubbers on vessels already on water, which you can also see on this slide. Our strong liquidity position provides us with sufficient funding to meet our CapEx obligation, as well as pursue further accretive growth opportunities in the future. Please turn to slide 15. Finally, I want to sum up our financial position in terms of key metrics, such as net asset value and loans of value. Vessel values came in flat at around $1.66 billion as of 30th September, 2018. We have an outstanding gross debt amounting to $760 million.
Here, we have a very favorable financing profile, with more than 60% of the scheduled installments falling due after 2020. We have outstanding committed new building CapEx of $296 million and cash of $163 million. This gives TORM a net loans of value of 54% at the end of the quarter, which we consider to be a conservative level at this point of the business cycle. Net asset value is estimated at $826 million. This corresponds to $11.2 per share, or DKK 72 per share.
I was just checking before commencing this call, TORM shares were trading at 41 DKK or $6.65 per share, they are trading at a considerable discount on net asset value. In short, I think we have a balance sheet that provides us with ample strategic and financial flexibility. Slide 16, please. With this, I'll let the operator open up for questions.
Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. You can cancel your request at any time by pressing a hash key, or you can type in your questions using the web panel. Your first question is from the line of Marcus Bellander of Nordea. Please go ahead.
Thank you. One question from me. On slide nine, you say that you expect, 5% incremental growth in the product tanker trade from the IMO 2020 rules. Is that specifically for 2020 because there's gonna be a lot of fuels moving around that year? Is that sort of a step up in volumes that will be persistent, so to speak?
Thank you, Marcus. Jacob here. Yeah, as you point to, it is the event of the 1st of January, where there is a step up of 5%. That will then persist. It's not a one time off, where you simply lift the demand picture by a 5%. We expect that to then be stable around that new level.
If I may follow up, why do you expect this increase more specifically?
It is simply so that there is a new type of fuel that now needs to be produced at various refiners worldwide, and it then needs to be distributed to the ports where there is the need for the end user, in this case, shipowners who need compliant fuels. There's not a, currently, a refinery sector that is based in the locations where you have the need for transportation fuels. Those new types of transportation fuels, which we call compliant fuels, will be had to distribute it on clean petroleum product carriers.
Okay. just to make sure I understand fully, the old fuel was not shipped around to the same extent as the new fuel will be?
It would be, but it would be predominantly done on crude carriers.
Yes. Okay, understand. Thank you.
Your next question is from the line of Finn Petersen of Danske Bank. Please go ahead.
Yes, hello. Good, a question to your slide of your relative performance on slide 11. The third quarter seems like you lost some of your advances you have seen since Q1 2017. Are there any explanation why you are doing a poor job in the third quarter than in the previous five or six quarters?
Thank you, Finn. Jacob here. I'll leave it up to you to evaluate whether we're doing a poor job. I think what we experienced.
Relative to the past.
Relative to the past, yes. That is absolutely correct. What we are experiencing is that right now, the market has converged sort of at a lower level in the third quarter, and let's just call it average $10,000 per day to be sort of without being exactly precise. What has also happened is that all of the markets that we operate in geographically, whether it's the Atlantic or whether Pacific or whether it's Middle East, where we can position our vessels, a part of our outperformance has generally been that we've been relatively good at predicting what will be the geographical area where you will have the strongest relative freight rates. What has happened during the third quarter here is that all rates in all areas have basically converged down.
As an example, right now, in here in the fourth quarter, what we're experiencing spot is that in the Atlantic Basin, MR freight rates is currently around $15,000 triangulated, whereas freight rates in the Middle East and Asia is around $10,000-$11,000. What you will find is that in the third quarter, these rates were more or less the same in all areas. A part of our inability to create higher value has been that there has not been these geographical areas offering a higher return.
Is the big question, where are you exposed for the fourth and the first quarter?
The first quarter I can't predict, and I can tell you, we follow on a weekly basis, the position of our ships. Right now, we have 75% of our fleet in the Atlantic, in the MR segment, which was the one I mentioned.
Of those, are they open or are they part of the how much of this is covered by... You're covering 63% of the days for the rest of the year?
What I'm describing is the next open position for the vessel. 75% out of the 50 vessels we have will be open next time in the Atlantic. The timing for their open will, of course, depend on their current depth of their voyage. I think what is very clear to me is that there has been a, as we point to in the presentation, change in the market dynamic. We have slowly, on a one-month rolling basis, we have been coming out of a very poor market, let's say around 10. Right now, our one-month rolling rate for MR is around 13. Spot for this week, I expect it to be closer to 15. I think that describes the current trend that we are seeing in our figures.
That is due to an opening of the diesel arbitrage windows in the North Atlantic, like the old days, or is that correct? How sustainable would that be?
It's, that's absolutely one of the factors, correct. The diesel arb from U.S. to continent has opened recently. What we are also experiencing and which is probably a more sustainable and important factor for us to follow, is that the transport distances in general, of the volumes out of refinery sector in the U.S. Gulf, have increased. Transportation needs in the third quarter for the refinery sector in U.S. Gulf, was predominantly to the nearest five destinations, so that would be Mexico, Latin America, Caribbean, et cetera. What we are experiencing now is that there is a trend for the volumes to also go longer distances, so down to Brazil, Argentina, Chile, across, as you point to the continent.
There is a clearly an arbitrage window that has seasonality to it, which has to do with the diesel you point to. There's also a bigger picture around that currently, the ton-mile effect of the same volumes out of U.S. Gulf, has a positive effect on the market.
Okay. Thank you very much.
Thank you, Finn.
Once again, it is star and one for any telephone questions. Your next request is from the line of Dan Togo of Carnegie. Please go ahead.
Yes, hi, and good afternoon. Going back to the IMO 2020, and the distribution of that globally, are there any markets in particular where this will hit? I'm thinking Atlantic, Pacific, et cetera. Are there any route areas in particular where this boost will be particularly strong? That's the first question.
Dan Jacob here, thanks for that. Out of the mix, as you can imagine, we believe that there is a disruption here, where actually the players in the bunker sector and providing the fuel to the whole shipping industry, will of course, need to find its new normality, and there will be new trading routes. However, it should be so that it is predominantly from Middle East to Asia, supplying the fuels, compliant fuels of the new type into, for instance, into Singapore, which is obviously a very important hub for this. They don't have the suppliers themselves there, so that would most likely come from the Middle East. You'll also see that Europe, in general, has a deficiency in bunker fuel types, and that will be moving, most likely from the US.
Mm-hmm.
Movement from U.S. and Middle East, supplying Europe, and from Middle East, supplying Asia.
Okay, thank you. On your investment here into scrubber production and installation. Firstly, how big an investment are we talking about for you guys here, or capital commitment, and what are the risks? Also, when are we going to see, you know, the profit contribution from this joint venture, i.e., and is it going to be substantial? I guess it will be some sort of one-liner in the P&L.
Thank you for that. One, about the financial investment and the risk, it is a figure that is less than $1 million that we put into the joint venture itself. This is basically so that what you do is you commit working capital in order to have the first production up and running. The production will start at the first facility next week in China. It has been identified, and we are then working on having one more facility where we can produce scrubbers. The capital commitment itself, and therefore also the risk, is less than $1 million.
Mm-hmm.
-that we put into it. If you look, and then if you come to potential financial impact of being a part owner, it will be a one-liner in the in our accounts, and Christian Søgaard-Christensen can explain where it would be included. How we anticipate is that we will obviously give an update, in general, on a quarterly basis about the development of the JV.
The JV, does it have, you know, orders, from others, outside you guys, to install scrubbers? Is it still very, very early days?
It is early days, Dan. We've just announced it, and there is an organization inside of that that will take care of that. I'm not privy in that sense to how far they are in having acceptance of orders. I know that there is a lot of requests.
Christian here, it will hit on the other operating income. Please bear in mind that there is a lead time from order to delivery of a scrubber of maybe six, nine months.
Mm-hmm.
It is into 2019 before you start seeing something in our figures, and potentially even second half of 2019 before you start actually having to work on it.
Okay, thank you very much.
There are no further telephone questions.
Thank you very much. With this, we'll conclude the conference call for TORM third quarter results. The annual report will be released on 12th of March next year, and we look forward to providing you with updates on our business at that time, and we'll keep you informed of any interim developments. Thank you for dialing in.