Good evening, and welcome to the Euronav Q1 2019 earnings conference call. All participants will be in the listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. Now I would like to turn the conference over to Hugo De Stoop. Please go ahead, sir.
Thank you. Good morning and afternoon to everyone, thanks for joining Euronav Q1 2019 earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Tuesday, April 30th, 2019, and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements which are not statements of historical facts. All forward-looking statements attributable to the company or to person acting on its behalf are expressly qualified in their entirety by reference to the risk, uncertainties, and other factors discussed in the company's filing with the SEC, which are available free of charge on the SEC website at www.sec.gov and on our own company's website at euronav.com.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, the company undertake no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements. Please take a moment to read our safe harbor statement on page two of the slide presentation. I would like to start with the agenda slide on slide three. I will run through the Q1 highlights and provide a full financial review of the income statement and balance sheet before looking at the current themes in the tanker market and Euronav's outlook before we take questions. Turning to slide four and the highlights page. The graph on slide four illustrates the resilience and continued strength of the VLCC market, in particular during Q1.
At the same time, the Suezmax fleet traded at near P&L break-even levels. This performance, in our view, reflects a better balanced VLCC market following last year's vessel supply adjustment through scrapping and strong growth in the U.S. exports. The U.S. expansion not only attracts stronger rates, but as largely VLCC-driven trade also absorbs a high level of capacity due to these cargoes mostly traveling long haul to Asia. Delivery of freight rates in the $35,000 per day region, despite OPEC cuts and increased vessel supply are something I will focus on in more details later. Through most of Q1, capital markets took a different view to the freight market with our equity value trading at a substantial discount to our net asset value.
Euronav took affirmative action throughout the quarter and bought back $20 million worth of stock as part of our approach of consistently looking to create longer term value of our shareholders. It is pleasing to report that since the quarter end, capital markets have recognized the disconnect between equity and asset values. The Euronav management and board remain vigilant on this issue and will continue to act opportunistically should we believe value can be created with further buybacks. In terms of current trading, there has been some expected seasonal weakness, with VLCC rates fixed at $26,500 per day and Suezmax at $18,000 per day for around half of Q2 so far. This was anticipated given the very deep and sustained refinery maintenance programs being undertaken early so that refiners can prepare for IMO 2020.
We believe that the current quarter may represent the seasonal low in freight rates for 2019 and not Q3 as traditionally seen in prior years. Moving on to slide five and the income statement. Application of the new accounting standard, IFRS 16, has meant an increase in our depreciation charge of $7.2 million per quarter. This relates to the four VLCCs which were part of a sale and leaseback in December 2016. From an accounting perspective, these ships now return to the Euronav balance sheet. It is important to remember that Euronav is fully exposed to the tanker market during 2019 with just one dry dock for one Suezmax during this year. Moving on to slide six and the Euronav balance sheet. Our balance sheet remains strong with the benefit of positive cash flows adding to our liquidity position during Q1.
Liquidity now stands at $785 million, up by over $100 million from $674 million at the end of December. As the freight market returned to profitability, leverage remains amongst the lowest in the tanker sector at 46% mark to market. Turning now to slide seven, I would like to give the words to Brian Gallagher, our head of investor relation. Thank you, Brian, over to you.
Thank you, Hugo. Slide seven. The continued growth of U.S. crude exports has been a key driver of our market, and especially the VLCC fleet. Year to date, exports have been running at 2.7 million barrels per day on average, a 30% rise on last year, and there have been several weeks of recording over three and a half million barrels per day. The capacity is there. As the chart shows on slide seven, however, there is much further to go in our view. This is something we examine in greater detail in this year's special report in our annual report, which you can find on the website of Euronav. The chart indicates potentially nearly eight million barrels per day of capacity by 2021. This is nearly three times the current level of export capacity.
Analysis by Pareto Shipbrokers suggests that this could require up to 180 additional VLCCs to manage this growth if this happens. A key factor behind such an encouraging figure lies in the absorption capacity that the U.S. exports have on the VLCC fleet. This is something we look at on the following slide, on slide eight. Slide eight shows a snapshot from the middle of Q1 showing a dozen empty VLCCs that were moving to the U.S. Gulf Coast empty. This is becoming a key feature of our market, with vessels servicing this growth by traveling there on ballast. Don't forget, VLCCs cannot use the Panama Canal, so this trade has to be executed by absorbing a higher number of ton-miles. The first signal we're seeing from the market is that U.S. exports are positive.
The second is a longer-term one from asset prices, which we look at on slide nine. The correlation between asset prices and share prices is much stronger in the experience of Euronav than between freight rates and share prices. As slide nine shows, the correlation with equity values and new build prices is 84% since Euronav started trading on Euronext in 2004. Asset prices have consistently been rising since 2008, since we announced our merger with Gener8, but equity values have remained largely static. Asset prices continue to remain firm and the outlook remains positive with consolidation in the key Korean shipbuilding markets, reducing supply further. The disconnect between asset and equity values contradicts the longer-term history shown on slide nine. This is something the management have been keen to address with our share buyback program during Q1, where we bought over $20 million worth of stock back.
Moving from a longer-term signal, I would now like to move on to a more short-term signal and the resilience that the market has shown in the freight market during Q1 on slide 10. Slide 10 shows a number of data points. The blue line shows the global oil supply from Q4 2008 through to the end of 2019. These numbers are from Citigroup. The scale of the OPEC cuts is clear into Q1. The dark blue bars show the deliveries of VLCCs that have come through during the same period, with nearly 30 units being delivered in Q1 alone. To put these figures into perspective, during Q1, we saw a reduction of around 3% in our demand, coupled with a 3% rise in vessel supply. Therefore, in this context, Q1 VLCC rates of $35,000 a day are very respectable.
This resilience, looking forward with oil supply, should start to recover as areas like the U.S. and Brazil continue to expand production. On the fleet supply side, the pace of new deliveries of VLCC equivalents is forecast to slow during Q2, Q3, and Q4, and this will be supported by VLCC and Suezmaxes exiting the market on a temporary basis in order to retrofit scrubbers. We estimate there are around 180 VLCC equivalents earmarked to retrofit during the rest of this year. That's around 20% of fleet capacity, implying each out of action for 60 days and a reduction on a net basis of 2%-3% in overall fleet capacity. We cover this in the light blue bars on slide 10. Finally, there should be some scrapping over 2019, but also the removal of further VLCC tonnage from the Iranian fleet as sanction waivers expire next month.
Already, three out of the eight nations importing Iranian crude are already down to zero imports. In conclusion, it is clear from slide 10 that from Q2 onwards, the headwinds our business has faced or is facing should move towards tailwinds as demand in the form of oil supply recovers and supply of vessels is impacted by retrofitting activity, potential scrapping, and a reduced pace of new building deliveries. This points us to Q2 being potentially the seasonal low in freight rates for 2019, and it is important to stress here that Euronav will be fully exposed to this potential improvement. As Hugo said earlier, we only have one dry dock scheduled for 2019, and that is a Suezmax. All of our VLCC fleet will be available for 2019 and none will be in the shipyard being retrofitted. To conclude, we look at our outlook slide on slide 11.
Importantly for us, we are upgrading one of our traffic lights for vessel supply to amber today. There is still a very heavy delivery schedule in place for the rest of 2019, with around 48 VLCC equivalents due for delivery. However, the disruption anticipated from retrofitting, possible increase in Iranian tonnage exiting the trading fleet, and further prospects for scrapping should all help offset this. This is the first upgrade in our traffic light since Q2 in August of last year. Elsewhere, demand remains robust. The IEA have retained their 1.4 million barrels a day forecast of oil demand growth for 2019 for over nine months now. The supply of oil, despite the OPEC cuts, we anticipate will recover progressively during 2019.
With that, I conclude our prepared remarks, and I will pass you back to the operator. Thank you.
Yes. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In consideration of the others, please limit yourself to one question and one follow-up. If you have additional questions, you may reenter the question queue. At this time, we will pause momentarily to assemble the roster. Today's first question comes from Jon Chappell with Evercore.
Thank you. Good afternoon, Hugo and Brian. Hugo, I wanted
Hi, Jon.
To focus both of my questions on strategy as you transition to the CEO role. I know you said in the press release that there's no change to strategy, but bear with me anyway. First one, I feel like I ask Paddy this almost every conference call, but your liquidity continues to rise, the market continues to strengthen. Asset values are also moving up, as you pointed out. As you think about entering the next two-year period of hopefully continued appreciation in asset values, but liquidity that's approaching $800 million, how do you think about prioritizing that liquidity as you position Euronav through this next phase of the market?
Yeah. Thank you, Jon. Very good question. I think that history can tell you what we're going to do with excess liquidity, especially when we are a positive rate environment. I.e., it's a capital allocation. We've been very generous in dividends in the past. You know that we have a fixed dividend policy, but that is a minimum dividend that we intend to distribute. When we have excess cash, we will distribute more dividends. Of course, you've seen that we were very active in share buyback. Of course, share buyback is another kind of tool, and that's a tool that we use when we feel that the share price is significantly depressed compared to a net asset value. It's going to be a mix of both.
We will make the analysis every time we ask ourselves the questions of whether we pay a dividend, or whether we should do more share buyback.
Okay. You feel the leverage is appropriate then?
Yeah. Around 50%. It is definitely appropriate, yes.
Okay. The second strategy question then is around the IMO 2020 preparations. I'll assume that you're still not moving forward with the scrubber path, but if that's changed, please let me know. More curious about the storage strategy that you've put in place. We've read about the one new ULCC that's storing. I just wanted to be clear, are you using this storage strategy for your own book? Your own VLCCs and Suezmaxes? Are you looking to take advantage of an arb for third party operators? This bunker inventory approaching $42 million in the first quarter balance sheet, is that the type of number we should be looking at from a working capital perspective? Or is that just the beginning stages and has the ability to move up significantly?
Well, our strategy on IMO 2020, and certainly retrofitting scrubbers hasn't changed, i.e., we've never said that we were against scrubbers, but we were against placing such a big amount of CapEx before knowing what the spread is going to be. Obviously we're going to monitor what's happening towards last quarter of this year. Then of course, over the course of 2020. If we need to change our strategy, we will do that. We feel that's a much better way of playing the IMO 2020 new regulations than any other way. Like first spending the capital and then hoping to get a return. As far as what you've seen in the press, I think there was a lot of speculation.
We have taken a number of initiatives around the new regulation, first and foremost, it is about the safety and the quality of the product that we intend to use. Whenever you have to use a new fuel, there are some risks and uncertainties around using them on board your ships. Last year, we have seen a number of bunker problems. We certainly don't want to go back to those issues when we are shifting fuel from HFO to a compliant fuel. We have done a number of things from an operational perspective. It's true that we have bought certain, what we could call compliant fuel. That was really to test them. We have accumulated certain quantities in the ship that we have placed in Malta, that's just for logistical reasons. We continue to elaborate on our strategy.
Unfortunately, it's a little bit too early to tell you exactly what we are doing, because we would like first to complete that, then announce to market what we have done.
Okay. Just to be clear then, that EUR 42 million of bunker inventory on the balance sheet, that's essentially you testing different blends of fuels in your preparations for running your own ships?
Yeah. There's a lot of different products there, indeed.
Okay. All right. Well, thank you for the very detailed answer, Hugo.
My pleasure.
Thank you. The next question comes from Gregory Lewis with BTIG.
Yes. Thank you, and good afternoon.
Hi, Greg.
Hugo, could you talk a little bit more about what you're seeing in the asset price market? Clearly, you're signaling that the market is strengthening. Why do we think that is? Is it a lack of buyers? Is it increased buying interest? Is it lack of sellers? Piggybacking on that, how should we think about you're managing the fleet as we look at maybe some of the older vessels in your fleet into a rising asset price market.
Yeah. No, of course. Well, I think every time the market is looking good, and that's definitely the case now, you bring more interest to the market, be it from existing participants or potentially new participants. So you build some sort of pressure on pricing, and obviously you see the values going up, and that is assessed by the brokers, and it's on the back of some transaction, not too many. I think that another very important element is what a new building price is at the moment. As you've seen, the yards are asking more and more for a new building VLCC, be it with or without a scrubber. All of that put pressure on the value, and positive pressure, of course.
What we have tried to demonstrate in the deck is that there is a high correlation between asset values and the share price. That's something that maybe the investor community has not paid attention enough to, as what we hear and what we read as comments from the analysis is mostly related to the earnings. We believe that it will continue to go up as it does in every cycle. As far as Euronav is concerned, we always try to take advantage of high values to dispose some of our older vessels. That's not the only strategy. As you know, most of the VLCCs that we have sold in the past were sold for conversion project. Those projects have an additional advantage that the vessel is leaving the fleet. We'll continue to look at those opportunities.
Of course, if we see interesting prices for our older ladies, then of course we'll definitely take a look and have an interest in disposing of them.
Okay, great. Then just on Iran, as we think about trade flows and the Iranian fleet, how should we be thinking about that? Is that a double positive in that maybe we get some ton-miles and those Iranian vessels simply go idle? In your experience in the past, what happens to those vessels when Iranian volumes are curtailed?
I'm not sure that you can really compare the current sanctions with the previous sanctions. I think that the attitude is very different, and as you've seen, the waivers will be limited in time, which means that the Iranian fleet is unlikely to be used to transport or to a very limited extent. I think the last time we had the sanctions, and that was under previous presidents, the fleet was composed of 40 vessels. About half of them were used as storage, and the other half was still used to transport crude oil. I think that this time around, we are looking at a fleet of 38 vessels. About half of them are already being used as storage currently, and we anticipate that the other half, at least part of it, will be used as storage, because the transportation will be very limited.
I think it is indeed potentially a double positive, first of all, because the vessels are not trading, are not transporting oil and leaving the trading fleet. Obviously, that oil has to be replaced by some other sources. When we look at the potential source that could replace it, obviously, there is a large part that can be replaced by OPEC countries located in the same region. There is also a big potential coming from the Atlantic, and that's where the ton-miles are increasing.
Okay, perfect. Hey, thank you very much for the time, gentlemen.
Thank you, Greg.
Thank you. The next question comes from Amit Mehrotra with Deutsche Bank.
This is Christopher Snyder on for Amit. Following up on the capital allocation conversation, you guys sold a couple older vessels during the quarter. The balance sheet's pretty under-levered, and you obviously have a strong liquidity position. I know secondhand prices have been rising. Should we expect you guys will still be players in the S&P market over the next 12 or 24 months?
Well, we never exclude anything, and we certainly can do a small transaction like we did in the past. I think as far as the biggest transactions are concerned, and certainly if it was an acquisition as opposed to a merger, we believe that now the pricing are probably too elevated for that. I think the last two big transaction that we did were at the bottom of the cycles, their respective cycles. There was a merged transaction in 2014, and more recently last year, the January transaction. We intend to follow that strategy. I think it's a very good strategy to buy cheap and then enjoy the assets when the market are rising. If it comes to a couple of ships here or there, obviously that depends on the circumstance at that point in time.
It also depends where our share price is, and then, of course, where the liquidity position is.
Okay. Fair enough. Kind of turning over to IMO. It feels like IMO 2020 will need higher crude throughput to offset potential waste in the refining process. How are you guys thinking about this in terms of how it relates to crude tanker demand and maybe how much additional refinery throughput we need?
For us, it's a little bit difficult to estimate exactly how much more throughput there will be. We read several studies, amongst which the Braemar one would suggest that it could be anywhere between 200,000 and 600,000 barrels additional throughput. That's obviously a big positive for us. We need to see where it's coming from, where it's going to. Anyway, it seems that the potential is upward and not downward.
Thank you for that. Just quickly following up, IMO will also probably bring new crude trade flows to the market. Are there any routes in particular you guys are particularly bullish on? Can you just maybe talk about what vessels would see the biggest benefit from that?
I think everybody's pretty bullish about the potential export out of the U.S. It has been rising over the last couple of years. We understand that there is a lot of infrastructure is being put in place so that all the oil, which is very light quality, can be brought to the Gulf Coast, and then can be exported to the international market. It seems that a lot of it will go to the Far East, that's very long distance, long haul, and that should bring additional ton-miles. That's definitely a region where everybody is looking at. I think that it's very hard for any participant in the market to forecast what the trade changes are going to be.
It seems logical that the older refineries are going to be in need of more light oil because it has a lower sulfur content, whereas the more sophisticated, more modern refineries, certainly the ones in the U.S. or the more recent one built in the Middle East or in the Far East, particularly in China, can crack anything. I think something that we will look at when it happens, because there are a number of refineries around the world that have not yet announced what their policy will be. When we speak to refiners, they certainly tell us that the feedstock mix is going to change because of IMO 2020.
I appreciate the time, guys. Thank you.
Thank you.
Thank you. The next question comes from Michael Webber with Wells Fargo.
Hey, good morning, guys. How are you?
Hi, Mike. Well, and you?
Good. Hugo, just wanted to loop back and clarify or follow up on two of your answers earlier. I think first to Jon's question on your storage play. I know you can't get into details now, but in terms of what you're working on, do you envision that potentially pulling any additional tonnage out of your fleet?
Why not? Everything is possible, we are also expecting some third parties to be interested in some of the vessels that we have in our fleet. Obviously, we have the TI Europe, which is also a 3 million barrel capacity vessel that is available for storage. You have to know that since 2008, both of those units, be it in our hands or in the hands of INSW until we acquired it from them, were used as storage. This is something that comes and goes, and we are definitely open for businesses. When it comes to conventional VLCCs or conventional Suezmax, that will be a decision we will take in due course and when we see the rates or time charter rates are being offered. It's a function of the oil being in contango backwardation as well as the fuel oil being in contango and backwardation.
I think we can anticipate a lot of storage maybe in the second half of the year ahead of IMO 2020, just to make sure that from a logistical perspective, the product is available to the entire shipping industry on time and on location. Once you go over January 2020, you may have requests to store HFO, if the production is in excess of the demand at that time.
Yeah. No, that's helpful. Interesting and a little bit differentiated, so just trying to get some more context there. To follow up quickly on, I think, Greg's question on Iran. In terms of that NITC fleet getting pulled out and more of it put onto storage, is that something you think we would likely see felt in the physical market in the back end of Q2, or do you think that actually gets felt mostly in Q3?
Well, as we said, I think half of the fleet is already standstill there, and you can monitor that.
Right.
As far as the rest of the fleet, well, the waivers are expiring in May. You should see the impact of that probably in, say, end of Q2, and then definitely in Q3.
Okay. All right. Just one on my own. Within your deck, I think it's slide nine, I think you referenced it before, just asset values and equities and the best charts always tend to be the simplest. Just plotting out those, the new build prices and equities is just interesting to review. If you look at that chart, there's clearly the pre-2009 period where you saw the ramp and China joining the WTO, then you've got the post-2009 market with some firmer periods in 2010 and 2013 and 2014. I guess, quite simply, when you look at IMO 2020 and what that can do to the potential earnings power of your assets and those asset values, do you think that's more akin to some of the peaks we've seen post-2010?
Do you think that's more akin to what we saw pre-2010, in and around the super cycle?
Well, as you know, and it's not because I'm going to become the CEO that we're going to change that. We don't have a crystal ball, and we are humble enough not to forecast what the TC rates will be. We're very hopeful that it could be as big as 2008 was. I think we have to be realistic. When I say realistic, we should be very happy if we hit the rates that we had in 2015, 2016. However, I do believe that IMO 2020 is a big change for our market. There will be a lot of volatility in 2020, and normally volatility brings higher earnings.
Yeah. Okay. Yeah. Just anytime you go back to 2004, kind of that 2009 here just kind of smacks you in the face when you look at those charts. Just trying to get some context there, but I appreciate it. Thanks, Hugo.
Yeah. Thank you.
Thank you. The next question comes from Chris Wetherbee with Citi.
Hey. Thanks for taking the question. I wanted to follow up, I guess, on that relationship between the steel prices and the equity price. I guess you've made some progress with the buyback. Just wanted to make sure I understand your comments earlier in the call about how you're thinking about capital allocation as we move forward. Why wouldn't it make sense to be somewhat aggressive on the buyback here in the relatively near term when you see this sort of gap blowing out? Just want to get a sense to make sure I understand sort of what you were saying before about how you're going to be treating the buyback in two Q and three Q and beyond this year.
Yeah. The decision we took, I believe was towards the end of December, around the 17 or 18, was a very easy one because the gap was more than 20% between our calculated NAV and what we saw on the screen share price. I think that we have recovered from this deep down that we had. It doesn't mean that we're satisfied with the share price at the moment. Far from it. In the meantime, we have had a very aggressive program in EUR 20 million spend in, I would say, one go almost, is the most aggressive program we have had in the history of the company. What are we going to do going forward? Well, it depends on the circumstances.
You also have to see that we went through a number of closed periods, so it can explain also why we were not more active as we saw the share price recovering. I wish we could have been more active. We certainly have the capacity to buy back more shares. We have the liquidity, and we have the authorization. Again, that will depend on the circumstances at the time of taking that decision.
Okay. We still see a gap even at $945. You still see a gap between where the steel prices are and where the equity value is.
I agree with that comment.
Okay. Got it. That's helpful. When we think about the availability of new fuels, I guess I wanted to get a sense of how you think about that. When should we see some of the transition to IMO compliant fuels? Is that going to be, three Q certainly doesn't feel like you have to wait all the way till four Q. When does that start to show up, I guess, in scale at ports?
Yeah, I think that will depend on every company and the positioning of the vessels, because you need to switch fuel on the 1st of January. Obviously you need to burn whatever you have left from HFO, and you need to make that calculation on a ship-by-ship basis. You also need to prepare the ship for the transition to the compliant fuel. It means that you will have to carry compliant fuel certainly in the last quarter. Depending on the length of the voyage, that could start at the late Q3. Most of it should be done in Q4, whether it's for Euronav or for the rest of the market, because it is a cliff deadline on 1st of January, you will have to carry both fuels.
Okay.
You will have to purchase it in advance of January 2020.
Okay. That makes sense. I wanted to touch base on slide 10, where you show dry docking for scrubbers getting in advance of IMO 2020. If you were to extend this chart out into 2020, how would those green bars look, I guess, in the first half? How much spillover do you expect from a dry docking sort of outage for the fleet in the first half of next year?
Chris, it's Brian Gallagher here. Yeah, it's a very difficult number to sort of give any sort of accuracy on. If anything, I think our view would be you're going to see, as you correctly say, some spillover because all of the noises we're hearing from those that are fitting scrubbers are that they're either getting pushed back or that people are going to err on the side of caution because their dry docking dates in order to get the scrubber retrofitted are very firm. They must make those particular windows. We would expect this to certainly overspill into Q1 and into Q2 as well, probably to a similar magnitude to the number you see there for Q4. Again, as you'll understand, there's not a lot of data points here, and there's a lot of sensitivity around it.
One view we've always had as well is that we would expect the retrofits and the repositioning to probably more likely increase in length. This impact could actually be understated from the numbers we've got here. This is going to be a very dynamic set of circumstances. Obviously what we're also trying to show on slide 10 is the fact that we've delivered what we think is a very respectable number in Q1, certainly for our VLCC fleet. As the year progresses, a lot of those headwinds start to unwind and become tailwinds, of which the IMO retrofitting and taking capacity out of the market is one.
Yep. Okay. That's super helpful. If you'll just permit me one more, Hugo, I just want to make sure I understood a comment also earlier relative to scrubbers. I feel like there might have been a bit of a nuance in the way you answered Jon's question about sort of your strategy. I think it was sort of CapEx spending until you understand what the relationship between the fuels might be. As we get closer to sort of maybe understanding what the relationship and the spreads between the fuels might be, is there a potential that your sort of approach to scrubbers might change? I just want to make sure I understood that there was nuance to the comment you were making there.
Well, I don't think there's any nuance compared to what we said in the past, be it from Paddy, be it in different presentation we've had. The reason why we were reluctant to retrofit our vessels is because we had to spend the capital without having any clue of what the return will be. That's what we have said, I think, for more than 18 months now. Obviously, once you go over the hump in January 2020, you see where the spread is, you see where it will stabilize, because I don't believe for a second that in the first couple of months or maybe a couple of quarters, it will be stable. I think it will be relatively chaotic. Once it stabilize, you see what the spread level is. From there, you can take an educated decision.
I think that from a risk perspective, playing with capital is much more reasonable to do that than spending the capital upfront. What we have also mentioned is that if we see that there is a significant drop in HFO, then we could very well store it and benefit from the low price of HFO, and then retrofit the vessels, which gives you an additional assurance on your return of capital.
Okay. No, that's helpful clarification. I appreciate the time. Thank you.
Thank you.
Thank you. The next question comes from Erik Hovi with Clarksons.
Hi, guys. Regarding the rising secondhand values in terms of the period rates, what is your input from the charters? Are you seeing more upward pressure in the period market? Do you believe the charters are beginning to pay for longer durations? Sorry, when do you expect the charters to begin to pay for longer durations?
We have certainly seen more inquiries in the market, they continue to be for a very short period of time. One, two years, from time to time, three years, that's more linked to what I would call projects, i.e., people ordering ships, and fitting them in a contract that was signed in advance, a little bit like what we did last year with our Suezmax. Yes, as far as the rates are concerned, it is going up. I would say that's totally normal. It's normally correlated to the spot markets, especially when you anticipate to have a couple of or more good years ahead of you. It's nothing extraordinary, and it's certainly nothing that for the period of time that it's proposed would be very attractive to us, certainly not on a big scale.
We'd like to see where the spot market's going, how it impacts the time charter market, and then more importantly, over which period of time the charterers are prepared to sign a contract. We are also cognizant of the fact that the industry has somewhat changed. i.e., most of the old majors out there are becoming short-termist, and that's because they've made some decisions in terms of what were the priorities for those companies, i.e., shifting from a more E&P perspective to a more trading perspective. Obviously, if you have more of a trader mentality, then you focus on the short term, not on the long term. We don't know if it's going to happen.
Okay. Thanks. That's helpful.
Thank you. The next question comes from Randy Giveans with Jefferies.
Hey, thanks, and congrats again on the promotion, Hugo.
Thank you, Randy.
A quick question on slide 11. You upgraded your vessel supply outlook. Now what is your, I guess, updated fleet growth assumptions for 2020? I know you give a detailed breakdown in slide 10 for 2019, but just kind of looking forward next year. Also, if you ordered a new building today, would you still be able to get that by the end of 2020?
Hi, Randy. It's Brian Gallagher again. Our fleet of growth assumptions for 2020 would be, we expect to see it somewhere in the 2%-3% range. Obviously, we've got a very heavy delivery schedule this year, although this is going to be offset by some temporary IMO retrofits. Obviously, as Hugo said earlier, some of the Iranian tonnage coming off. We think that's manageable in terms of that context of 2020. The reason we're changing the vessel supply, albeit still to an amber, it's only gone from a mix of red and amber to amber. To flag it is that obviously we feel these other drivers of temporary supply being taken out of the marketplace for retrofitting the Iranian situation.
Whilst we would expect ships maybe not to be going to scrap, we would expect to see quite an active element of the older part of the fleet going into storage, therefore leaving the active trading fleet. All of those are very positive and quite meaningful in terms of pushing back on that vessel supply. That's the reason for the change.
Got it. All right. Then if you can just kind of clarify the remaining authorization on the current share repurchase program.
Yeah. We have an authorization to repurchase up to 20% of our capital. We have used, I believe now, 1.3% or 1.4%. There is ample capacity. Obviously don't expect us to buy back 20%, it's just to say that from an authorization perspective, we have everything that we need for that.
That's 20% of your market cap?
Well, that's 20% of the issued capital, it's the same, yes.
Yes. Okay. Got it. All right. Well, thanks again.
Thank you.
Thank you. The next question comes from Ben Nolan with Stifel.
Yeah, thanks. My first question relates to something actually I saw this morning that you guys were part of a group that is pushing the IMO to set maximum speeds or in effect, require shipping companies to slow steam. Could you maybe talk through that a little bit and just whether or not that's something that you think is realistic in the more immediate term, or that's just a longer-term solution?
I think that indeed. We were, I think, one out of 110 shipping companies to sign this letter for the IMO 2020. Discussion will take place in May. You may recall that around IMO 2020, we already mentioned that we were a little bit worried about IMO 2020, simply because it meant that ships were going to emit more CO2 at a time where the IMO had signed the Paris Agreement, which basically means that by 2030, you need to reduce your CO2 emissions by 50%. No, sorry, by 30%. No, sorry, by 50%, and then by 2050, by 70%. It is a huge challenge for the shipping industry altogether.
I think as far as the slow steam is concerned, that's a relatively quick way of reducing already dramatically the CO2 emissions, because as you know, those emissions, like the consumption of the fuel, is exponentially correlated to the speed. If there was some sort of speed limit and certainly speed reduction, you would have already seen the CO2 emissions being reduced dramatically. Is it a long-term solution? Absolutely not, because this is not enough. As far as a long-term solution is concerned, you absolutely need to look at the type of fuel that you will consume. A lot of people are talking about LNG, which again, it is a fossil fuel, so it may be helpful as a transition, but ultimately, if you want to go down to 70% reduction, you're going to need to find alternatives.
I think as Euronav, as one of the leader of our industry, we want to make sure that the IMO and the shipping industry altogether can participate in the CO2 reduction. That's the reason why we have signed a letter, i.e., committing ourselves, to participate whatever research and development exists out there and that we find interesting in order to meet those requirements. Now, of course, if you think about the slow speed, I guess that everybody can understand that it will reduce the supply. The market needs to adapt in both ways, and make sure that the supply that remains after adapting the speed is enough for the demand that there is out there in the market. Overall, it's obviously very positive for the environment and for the business.
Okay. Is it something that you think could happen, I don't know, in the next 12 months? Is this proposal a little bit longer dated, I guess, was the question.
Well, it's a very good question. I think that it will be discussed at the May meeting. If you look at the deadlines, there are intermediary deadlines in 2030, it may seem like in 11 years from now, but quite frankly, you need to do something almost already. Maybe we needed to do something yesterday, in order to meet the requirements of 2030. I don't believe that we have the luxury of waiting. I think that's why you've seen this idea of slowing down the ships gaining momentum. You understand how the IMO works. There's a lot of voices in those meetings. Obviously, a number of countries have already voiced their favor for slowing down the speed. It could be that some decisions are taken already in May.
As far as from when they are applicable, I think will take more time because it's one thing to take the decision, it's another one to apply it and to see how we're going to monitor it in the market and make sure that everybody can adapt the new regulation, speed regulation.
Right. Okay. I guess my second question relates around buybacks. Obviously, that's been a topic of the call, notice that I believe all of the buybacks that you've done so far have been on the euro-listed shares. Any reason for that, how are you thinking about U.S.-listed versus euro-listed float, and what you're doing there?
Sure. Hi, Ben, it's Brian Gallagher again. There's no great science on this. We obviously have shares which are fully fungible between the two exchanges. We have a bit less volume in the European line, we're just trying to rebalance and refocus some of that. We'll have the option and we have the opportunity to buy in both lines. It's just we've taken that opportunity. We've been trying to rebalance a little bit from the European line. Nothing more than that.
Okay. Perfect. If I can sneak one in. The Suezmax rates were a little less than I thought, and it kind of looks like they tailed off, from what you had booked at the beginning of the first quarter. Any color about just the Suezmax market or anything that might be happening there, or how you were positioned within it?
No, I think it's a little bit too early to see if there is a more permanent disconnect between VLCCs and Suezmax. History shows that the two segments are heavily correlated. We believe that in the future, they will also be correlated. I think that there is maybe a timeline between the two, but it's too early to come to conclusion.
Okay. All right. Thanks, guys.
Thank you. The next question comes from Fotis Giannakoulis with Morgan Stanley.
Yes. Hi, gentlemen. Thank you. Hugo, you mentioned about the possibility of buying and storing fuel oil if price of fuel oil collapses. I'm just trying to understand how much capital are you planning to devote into that. Is this going to be fuel oil that you potentially going to buy for your own use, assuming that you install scrubbers, or this is going to be also for trading purposes, buying low and selling high at a later stage?