Good day, and welcome to the Stolt Nielsen Limited First Quarter twenty eighteen Results Presentation and Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Niels Giesdol. Nielsson, please go ahead, sir.
Thank you. Good morning, good afternoon, and thank you for joining us at our first quarter twenty eighteen result presentation here in Oslo. I will be referring to a presentation, which is on our website. So again, with me today for the first time as CFO is Jens Skolnhege, taking over of the Jan Englertsen. The agenda, as always, we will go through the highlights for the first quarter, then I will go through each of the businesses and then followed up by Jens will do the financials, and we will open up for question and answers at the end.
Moving then on to Page five of the earnings of the presentation. The biggest impact on the first quarter result was the $24,900,000 onetime gain we had as a result of the reduction in taxes implemented by Trump, primarily coming from the assets that we had the deferred tax liability that we had in The United States because of our terminals in Houston and in Orleans. Stolt Tankers reported an operating profit of $10,900,000 and that is down from $20,400,000 in the fourth quarter of last year. The main impact and the main reason for that is the increased bunker price. I will go into, of course, more details under the tanker presentation.
Stolt Table Terminals reported an operating profit of $25,900,000 and that is up from $5,400,000 in the fourth quarter. The fourth quarter included a onetime impairment of $8,400,000 on the in the asset in New Zealand. And then also, the first quarter of this year had an $8,200,000 gain of some deferred tax gain that we had on the lower taxes in Antwerp and our terminal. But the underlying improvement in earnings in terminals are significant, and we'll show that more in details later. Stolt Tank Containers reported operating profit of $16,200,000 That's down from $17,000,000 from in the fourth quarter.
And that is actually quite a good result, taking into consideration that first quarter is traditionally a slow quarter for small tank containers. So T Farm operating profit before the fair value adjustment of inventories was $2,200,000 and that is up from $100,000 in the fourth quarter. And that reflects better margins, lower operating cost production cost and better prices. Corporate and others had a loss of $3,600,000 and that is compared to a loss of 9.4 in the prior period, giving us a net profit for the quarter of 38,700,000 versus the $1.1 we reported in the fourth quarter of last year. Moving down to the net profit variance analysis between fourth quarter and first quarter, 1,100,000.0 in the fourth quarter of last year, 9,500,000.0 because of lower tanker operating profit, higher terminal profit of $20500000.0800000.0 dollars lower tank container, slightly higher Sea Farm, then you have the $24,900,000 gain from the one off, dollars 4,700,000.0 higher corporate and other results.
That's primarily driven that we had lower A and G and better equity income from our investments equity investments. We had an impairment of our bitumen business in Stolt Bitumen in the last quarter, which we didn't have this quarter. And we also had a one off gain last quarter in the fourth quarter of The U. S. Retiree health care plan in the prior quarter of 7,200,000,000.0 which we didn't have this quarter.
FX, slightly higher taxes, bringing us to $38,700,000 net profit. Then moving on to Stolt Tankers. Out of the 4,500,000,000 we have in assets, 2,500,000,000.0 is in ships, and this is the challenging part. Deep Sea revenue for the quarter increased 3.7%. That reflects an increase in average COI rates.
The regional fleet also did better and increased by 7.4. And I remind you that the 2017 was negatively impacted the revenue was negatively impacted by 2.5% because of Hurricane Harvey. The total volume we shipped in the first quarter increased by 0.6%, driven by higher spot volumes. The COA renewals in the quarter were on average down by 4.1% compared to a decrease of 1.1% in the fourth quarter. So the COAs that we renewed, the ones that we renewed and that we didn't lose, the average rate decrease was 4.1%, reflecting a highly competitive market in the COA segment.
However, rates and terms and conditions on the COAs, 87% of the twenty eighteen COAs have been fixed and are agreed with customers. So 87% of the COAs that we will carry in 2018 have been now fixed. The COA rates were higher in first quarter versus the fourth quarter. That doesn't reflect that we had a higher COA rate that we fixed, but it's because in the first quarter sorry, in the fourth quarter, we had Hurricane Harvey. And a lot of the COA nominations were canceled.
So we actually carried more spot volume. So we had a lower now this first quarter, after harvest, the COA nominations were more normal out of The U. S. Gulf where we have higher COA rates. So it's not really reflecting a better COA market, but it's the first quarter, we fixed more U.
S. Gulf to the Far East, more Transatlantic COAs were booked, and they have higher contract rates COA rates. You can see here on the STJS or Stolt Tankers Joint Service Sales in Time
Travel Index
that the lowest we had since 2009 was first quarter twenty twelve, and the hair shows 0.56, and today, we are at 0.57. So not really a pretty picture. If we look at Page eight, this is operating profit variance between the fourth quarter and the first quarter. So higher trading, excluding bunker impact due to Hurricane Harvey, in other words, the COA nomination, as I explained, caused a higher trading results of $6,400,000 That was offset by $8,700,000 of bunker hedge variance. That's the paper hedge variance that we had.
So in the first in the fourth quarter, we had a paper hedge gain, which we didn't have in this quarter. And then we have the bunker cost variance. That's because of the higher bunker cost. So if you take the bunker cost, plusminus the bunker surcharge that we get, we had a $5,600,000 more or higher bunker cost in the first quarter. We had significant lower ship management costs this quarter, lower joint venture equity income, reflecting the same as we see in our main fleet, higher depreciation and gain and loss of sale of assets of negative 1,000,000 bringing us to $10,900,000 The bunker cost, net of bunker surcharge, but excluding bunker hedges, by $5,600,000 as I explained.
The average price for the IFO consumed increased to $369 per ton, and that is up from $328 in the fourth quarter. The average IFO price that we purchased in the quarter was $3.79 compared to the $348 The COA bunker surcharge clause covers on average 61%. So that's the bunker clause that we have in our COAs. Here you see the bunker historic bunker prices versus the spot rate. And I mentioned that the STJS index was 0.56 in the 2012 and it's now 0.57 in 2018.
While we were basically net breakeven in salt tankers, in 2012 as a full year, we lost $55,000,000 even though the index is at the same level. And that is because, one, the regional fleets are doing better, which is not included in the STJS. And also, our operating costs have gone significantly down compared to 2012. So it's positive. The market is not positive.
But if you compare the market conditions, we are actually doing better today relatively because of our lower operating costs. An increase in IFO fuel prices from $352,000,000 to $375,000,000 result in a $7,800,000 of additional cost. At current IFO price purchase price, about 1% of total fuel cost is recovered through surcharge costs in our contracts. If the IFO price increases to $450 this would grow to 9% recovery. So I'll show you here in more detail.
This is not really this is something that you can look at when you come back, but this is a sensitivity of how the bunker price you can see that the bunker price has a big impact on our results. Demand in our business is normal. The volume is healthy, but it is our results are heavily impacted by the bunkers. So if you take then, we consume around 112,000 tonnes per quarter. At the current first quarter price of $369 our total cost is $55,900,000 If that base price of the entire bunker price goes up by 5% to $387 the bunker cost, IFO and marine gas oil, will be $58,700,000 Then that's a 2,800,000 increase.
We expect to recover at $1,500,000 through our COA rates, our COA bunker clause, which has a net impact of $1,300,000 But then we also have the paper hedges, which will give us a positive gain of 2,100,000 And then we have given you various examples, and you can look at that in your models. Moving to Page 12, market development. The spot rates strengthened in late twenty seventeen, early twenty eighteen, but unfortunately, the improvement was short lived and the market has returned to earlier, weaker levels. There's an intense COA competition driven by owners seeking to secure cargo in advance of the newbuildings that we see coming in, in 2018 and some in 2019, but majority in 2018. So we are really seeing strong competition from our main competitors on our COA renewals.
And that was, again, reflected in the 4.1% decrease in the COA renewals in the first quarter. Outlook remains stable for fundamental petrochemical shipment demand. So there's it's a healthy demand. Of course, there's a lot of uncertainty with the trade war that's hopefully, it's not going to develop as a trade war. But as it stands now, we see healthy nominations.
So volume wise, nothing is wrong. The MR market remains weak and continues to have a negative impact on the chemical tanker market. We see that the kind of completion cargo, that when we have finished our COA nominations, we fill it up with spot. And sometimes on the repositioning legs that really impacts the run voyage results, you fill it up with easy chemicals, and that market is influenced by the MR market. Higher fuel prices and excess newbuilding supply will limit the gains in years ahead.
The VLCC on Page 13, the VLCC and MR market and chemical market are frequently correlated. All three segments remain in oversupply with further newbuildings on order. So you can see here, we have compared the three segments, and they do correlate. Growth in demand is insufficient to absorb the newbuilding capacity that is being delivered. There's no significant recycling that we expect.
So our market outlook remains that 2018 will be a challenging year. We hope to remain profitable, but it is a challenge. However, based on the newbuilding on orders and unless we start to see a new wave of orders, which I don't think is going to happen in the near future, we do expect that 2019 and 2020 can be good years. Page 14, here you see the order book, and you can see that there's significant delivery in 2018, tapering off in 2019 and 2020. Moving then to sort better news, and that is the terminal division.
It continues to grow both top line and bottom line and strengthening. Revenue increased by $1,200,000 last quarter. The global utilization has grown to 88.5%, up from 87.6%, and that is due to additional leased tanks that we did in the fourth quarter, both in Houston and in our U. K. Terminal in Diagon.
The same thing for utilization in our joint venture went from went to 93.4% from up from 91.4% due to improvements in Ulsan in South Korea. Operating profit increase reflected the EUR 8,200,000.0 of additional joint venture equity income, resulting from the reduction of deferred tax liability in our JV in Antwerp that we have with Oil Tanking and an 8,400,000.0 expense last quarter relating to the impairment of assets in New Zealand. But the underlying fundamental operating profit was up by million dollars yes. So it's nice to see that it's only blue on this slide, Page 16, 5,400,000.0 higher revenue. We didn't have the impairment this time around that we did in New Zealand in the fourth quarter.
Higher equity income the joint venture income, the deferred tax liability to the joint venture and lower operating expenses. So that's going from $5,400,000 to $25,900,000 On Page 17, Stolthaven Terminals market update and key initiatives. We continue to pursue the development of long term contracts with potential pipeline connected industrial customers. Long term, this is primarily looking at our hubs, our big terminals, especially in Houston. We focus on continue to focus on the ship to shore efficiencies.
We are including the construction of a new ship dock in Houston, as we have announced earlier, and we expect that to be completed in the first quarter of twenty nineteen. Aim is to reduce the ship waiting time and turnaround times, improving tons per hour while increasing terminal throughput volumes. Houston is performing well with increased operating revenue as a result of high utilization rates and utility revenues, and exports are strong, but concerns about The U. S. And the China tariff dispute.
I must say that The U. S. Gulf market is very strong. We're getting a lot of inquiries in Houston and in New Orleans, and that's very encouraging. Guy Besson, the President of Salt Haven Terminals, is really doing a fantastic job with the turnaround, upgrading the terminal, but not only upgrading the assets but also reviewing our portfolio of contracts, shedding off the low paying, low margin business that is not strategic for slow tankers and replacing it and taking advantage of the strong market and replacing it with a higher paying business.
The Singapore market remains challenging, as we now but we are seeing signs, and we have won some additional contracts there. We will see more and more inquiries in our Singapore terminal. The Korean market is showing stable demand with an improvement in lease capacity and increased equity income. The European market remains stable for chemicals but weak for CPP. And I'm very happy that, as you know, we are focusing on chemicals in our terminal business.
The infrastructure improvement is underway. Just to remind you, Stolt Nielsen has invested over $1,000,000,000 in terminals since 2010, almost doubling our capacity with an increase of more than 800,000 cubic meters. The multiple infrastructure investments at our terminals, including, again, the new jetty in Houston. Action aimed at improving utilization, growing the revenue base and enhancing overall performance, focusing our EBITDA margin towards 60% and further growth of EBITDA may come from improved utilization and organic growth. So I would say that, as you know, we have 4.5 sorry, 2,400,000,000.0 in debt.
We have reached our self imposed debt limit. But we have the reason that we have that debt is that we have invested in our businesses, of course. We have grown the terminal business significantly, and we will I believe we will see a significant growth without any further acquisitions or further tax. We will see continued growth in the earnings coming from the terminals by improving the utilization, filling up the tanks that we have built and also improving the margins by shutting off the lower paying business and replacing it with higher paying business because of the improved market conditions. So again, I think that you will see continue to see improved earnings coming from Stolt Haven terminals without adding any additional debt to our company.
Page 19, Stolt Tank Containers, continues to be a star performer, and I'm very happy to say that the market is strong. It fell, as you know, in 2015 and 2016, but it's recovered nicely in 2017 and 2018, and we are seeing no signs of slowing down. So even though the margins have come down, our utilization have come up again. And when the utilization has come up to over 75%, we are now pushing up margin too. And it is a lot of activity.
Revenue due is down in the quarter, and that's a seasonal trend, very much driven by the Chinese slowdown the year. We continue to develop the depot network to support the businesses. We're building depot, we're building a huge depot in Jubail next to Sadara, the joint venture sorry, Saudi Aramco and Dow. So we are building these depots at strategic locations so that we can turn the tanks around quickly and offer an efficient service to these key locations. Utilization essentially unchanged and margins stable.
Here, again, I think that we will continue to see improved earnings from Tank Containers going forward. Just quickly going through the operating variance for Tank Containers between fourth and first quarter, Page 20. Operating profit of $17,000,000 Lower transportation demurrage and other revenue of 4,400,000.0 lower operating expenses of 4.7 higher slightly higher AG of 0.8% and others 0.3 bringing us to 16.2%, very much seasonally driven. Stolt Tanker and Market update and key initiatives on Page 21. Stronger demand in most regions, focus on increased both utilization and terms per tanks, reduction in operating expenses, and we continue to focus on developing our systems and our platform, which I think is the key competitive advantage Stolt Tank Containers has.
Two depots under construction in Saudi Arabia and The UAE in that improving turnaround times. We continue to grow the fleet. Historically, we've run both the fleet and the shipments of around five percent, and there's no reason why we're not going to continue to do that going forward. Fish, very quickly, you will see improved margins. The turboprices are up.
The salt prices are up. And I think we will continue here also to see improvement both from the turbid business and the saw business as the saw volume increases. Moving to Page 23. I'm not going to go through it. 4,900,000.0 in operating profit in the fourth quarter and $5,500,000 in the first quarter.
We have not reduced our prices after Christmas and New Year sale, and we have been able to keep the prices up during what is normally a slow season, and we are actually now in the process of increasing it again. So it looks promising. That completes my part of the presentation. I'll give it to Jens for your first time. Good luck.
Thank you for that. Good afternoon and good morning to those in The United States. I'll provide as normal I'm not going see any big changes here, but I'll provide as normal further comments to the financial results as they were released today for the first quarter and also give some further guidance on the P and L items for the next quarter. Before proceeding, I would like to remind you that we have today filed with the Oslo Stock Exchange our interim financials. And that, together with the earnings release and this presentation, has all been posted on our website.
So moving to the next slide. Operating profit before one offs for the 2018 was $46,700,000 That's pretty consistent with the $47,000,000 that we had in the prior quarter. In the fourth quarter, the negative impact on tankers from Hurricane Harvey was about $7,000,000 offset by the bunker hedge gain of $8,400,000 whereas in the first quarter this year, the higher bunker prices had a negative impact, as Niels mentioned, of about almost $6,000,000 after surcharges. Now before onetime adjustments, terminals had an improved performance of $4,000,000 in operating profit, And Corporate and Other had reduced A and G and improved results in equity investments. Now if you look at major one offs, we had quite a few last quarter.
This quarter, we are showing one, and that is the gain at our joint venture terminal tank, salt driven oil tanking in Hamburg, Belgium, where we had a one off gain of $8,200,000 related to the reduction in the Belgian corporate tax rate that went from 25% down to 20 sorry, from 35% down to 25%. And if we look including all these one offs, the operating profit increased by $16,600,000 compared to the prior quarter. And net interest expense was consistent with the prior quarter. The tax, as Nils mentioned, included the effect of The U. S.
Income tax change in the corporate income tax rate from 35% to 21%, which became effective January. And the FX loss that you see there was a result of the weakening dollar compared to the prior quarter. And net net, we then came in at a net profit of $38,700,000 for the quarter. Turning to next slide. Our focus continues to be on reducing debt where and when we can and on maintaining a strong liquidity position.
During the quarter, the debt increased by $50,000,000 to $2,500,000,000 sorry, as we drew down on a credit line, so we paid to pay for some of the capital expenditures. Equity was I'll come back to the capital expenditures a bit later to show you how we're actually going to reduce those. But equity was also up by $83,800,000 up to $1,560,000,000 And this was in addition to the net income for the quarter. This is also due to increasing foreign currency and hedging reserves in our other comprehensive income. And this was driven by the weaker dollar.
Debt to tangible net worth ratio stayed steady at 1.55 to one compared to 1.51 in the fourth sorry, same as the fourth quarter. And if you look at the net debt to tangible net worth, that was marginally down at 1.5 compared to 1.51. The EBITDA to interest rate interest expense ratio for the quarter, that was at 3.49%, and that was an improvement from the prior quarter. At quarter end, the availability under our revolving credit line was $395,000,000 We did pay down a bond subsequent to the quarter end, hence why we had such a significant availability. In addition to that, we had $70,000,000 in cash and we had $65,000,000 in uncommitted credit lines, so for a total liquidity position of more than $05,000,000,000 Average interest rate for the quarter was at 4.92%.
This is slightly above the fourth quarter, that's because in the first quarter, we had the full impact of the bond we issued in September, the fixed rate US175 million dollars bond. We expect that the interest expense for the coming quarter will be just marginally down, but around $34,000,000 Moving over to the cash flow. Cash flow from operations was positive 5,570,000 It was down from $62,000,000 in the prior quarter. This was primarily due to lower working capital than in the prior quarter as trade receivables hedged up. Most of that $23,000,000 in working capital is an increase in accounts receivable.
CapEx for the fourth quarter included work on terminal projects, including the Houston Jetty, Stolt Tank Containers depot expansions and dry docking of ships. And debt issuance primarily reflects the $45,000,000 drawdown on the share pledge facility that we have and $9,000,000 on the revolver to fund capital expenditures. So cash balance at the end of the quarter was, as mentioned, dollars 70,000,000, slightly up from 58 Now our focus does remain on reducing debt and carefully reviewing our capital expenditures and reducing our operating expense. Looking at the EBITDA, just want to remind you that the S and L EBITDA figure that we're showing here excludes any impact of the Stolt Sea Farm IFRS fair value adjustments to their inventory. It also excludes gain or loss on sale of assets and any other noncash onetime events.
Tankers' EBITDA decreased mainly due to more challenging market conditions driven by the higher bunker price. Terminals increased due to improved EBITDA at Houston and some of our joint venture terminals. And I should highlight here that, that increase excludes the gain that we took at our Antwerp terminal, 8,200,000.0. So this is excluding those $8,200,000 STC's EBITDA decreased slightly consistent with the seasonally weak first quarter, but it's well above what we had at the first quarter last year. And as a consequence, Stolt Nielsen's EBITDA for the quarter decreased to $109,000,000 from $111,000,000 driven mostly by the tankers reduction.
Going over to administrative and general expenses on the next slide. For the quarter, this was up at $57,000,000 up from $52,300,000 in the prior quarter. This is consistent with the guidance that we gave of $57,000,000 But keep in mind that the prior quarter had a gain of $3,900,000 that related to the change in The U. S. Retiree Health Care Insurance Plan.
So that pulled down the prior quarter's A and G. Increases in the first quarter was also due to the higher profit sharing and long term incentive plan accrual and normal annual salary increases that kicked in in the first quarter. Our guidance for the next quarter is essentially unchanged from this quarter. Moving over to the next slide, depreciation and amortization. For the first quarter was $67,200,000 This compared with $68,600,000 in the fourth quarter and our guidance of $69,000,000 The reduction in STC was due to an adjustment in the fourth quarter of the useful life of a group of containers as well as making a correction to depreciation of some leased tank containers.
And that increased depreciation in the fourth quarter for STC by $1,600,000 And a subsequent consequence of that is that subsequent quarters will have lower depreciation. So hence, the drop that you see there for STC. And the guidance for the next quarter is $69,200,000
I'll not go in on
the impairment, but just show that
as a reminder to you all.
Moving on to the next, share of profit of JVs and tax. Share of profits in our joint ventures was $14,300,000 as compared to 4,600,000.0 and that is predominantly driven by the significant one off at our oil tanking joint venture in Antwerp. Tankers saw a slight decrease, and that was in line with the overall tanker results. And in addition to the improvements in Antwerp for terminals, we also saw improvements at our joint venture in Ulsan, South Korea, which produced improved results following the capacity expansion there. Our guidance for the next quarter is $5,700,000 pretty much removing the $8,200,000 gain in Adverb.
The reduction in the tax charge comes mainly from the reduction in the net deferred tax liability, as we talked about earlier. This followed the U. S. Government's decision to lower the corporate tax rate from 35% down to 21% effective January 1. It had a positive impact of $24,900,000 in our first quarter twenty eighteen results.
Now capital expenditures. They were $37,000,000 in the first quarter. This included tanker drydockings, terminal expansions, including improvements and jetty expansions at Houston and our Newcastle Australia terminal, expansions at our Santos, Brazil terminal and further deposits on our gas newbuildings. As you can see, the capital expenditures are going down substantially going forward. Now that we have really completed our newbuildings program, We have a total of $435,000,000 remaining through 2022 as it stands today.
Tankers capers going forward include about $45,000,000 and that's for ballast water treatment systems. And for terminals, we have further $24,000,000 for the Houston jetty and other $27,000,000 for further improvements at the Houston terminal. Dollars 12,000,000 for the expansion in Brazil at Santos and the bulk of the remaining is for maintenance CapEx. And at Sea Farm, we have two new farms being expanded in Serbia and Torca in Spain. That's for the production of Sol.
Moving on to the next. The debt maturity profile for the next five years. So if you look at the blue columns, that's the amortization of senior debt, regular principal payments. The orange is the balloon payments on debt. And the blue are the bonds.
You see the striped box on top of the twenty eighteen column. This is the bond that matured on March 19 and was repaid by drawing on our revolving credit line and thereby reducing that credit line from the $395,000,000 that we had at the end of the first quarter by $150,000,000 approximately. So hence why we had such a significant liquidity position at the end of the first quarter. That originally was funded through the bond that we did in September 2017, and you'll see the maturity for that on the top blue box in 2022. In 2018, we have a further about $160,000,000 maturing.
That is a facility we took out in conjunction with the acquisition of J. O. Tankers and that matures in November, and we expect to have that renewed in the not too distant future. I think with that, it's back to you.
Key takeaways. Net profit first quarter thirty eight reflecting significant one offs during the quarter. Continued soft market in tankers because of the newbuilding deliveries, we expect that the remaining of 2018 will be challenging, but hoping for an improvement in 2019 and 2020. Strong demand in tank containers, solid fundamentals in terminals and rising prices both for sole and turbine installed Sea Farm. As Jens said, we continue to focus on debt reduction and cash flow improvement.
We had a one off gain from the tax in The U. S, and the group continues to have access to competitive funding and sufficient liquidity is secured. Even the bond repayment that we're going to do in 2019, if the bond market should be challenging 2019, we have un collateralized assets that we think we can raise two fifty million to $300,000,000 of regular debt. So we are feeling comfortable with our liquidity position and the access to debt, not necessarily bonds. As I pointed out, we have invested heavily in our businesses.
I believe as I presented at the DNB Shipping Conference, I believe that with the investments that we have had in Stolt Nation, our company has assets today which could grow our EBITDA to well above $600,000,000 with realistic assumptions both for Tactors and the other businesses. So we are well positioned. Our debt will be going down this year and continue to go down going forward. And we have said to ourselves that until we have seen significant improvement in our balance, we are not going to take on any big acquisitions. That completes our presentation.
We will now open up for questions, and we will start here in Oslo, followed with the phone. So any questions here in Oslo?
Yes.
Well, the question there was about for the people on the phone, about the position we take towards bunker costs going forward oil prices going forward and also how we position ourselves towards 2020. Now the that's the paper hedges that we took, we took the gains that we're taking is we hedged at the right time, and we're taking the benefit from that. Speculating on where the oil prices is at 70%, it will continue to go up. What we have said is that we have 60% of our bunker cost is covered through our COAs. So our total cost because we are about 70%, 75% contract and the rest is spot.
So we will continue to have bunker clauses in almost all of our COAs. And that's our main hedge for tankers. Taking a paper hedge bet on bunker prices going oil prices going further up, we haven't taken a position on. I think that's $70 $75 it's I question if we will do any more paper hedges at this time. When it comes to $20.20, I think that we are in the same ballpark as the rest of the shipping industry.
We have five ships, which we have installed scrubbers on. We want to see how that works before we do further investments. So that's an alternative. Otherwise, it's going to be a challenge for the industry to pass that additional cost on to the customer. It's almost a doubling of buying marine gas oil will be almost a doubling of our current cost.
So if we are not able to pass it on or if the industry is not able to pass that additional cost on, we all will be going out of business very quickly. So as we stand now, we are looking at the scrubber technology. We are also questioning what will happen to the diesel or marine gas oil prices. And we're also looking and seeing if there is a low sulfur fuel that will be developed. But as it stands now, we believe that we all of our contracts that we have have included plans that in 2020, we will sit down and talk to our customers.
Sorry? Hedging and drill prices. Do you have
have not done that, and we have not considered doing that at this time. So the specialty chemicals that we carry, the bulk of what we carry, we don't believe is going to be affected by it, but it's too early for us to kind of have an opinion on it. I received an e mail from our China office today saying that the Chinese are really opening up for talks to hopefully negotiate and are encouraging, as you read in the newspaper, not to start a trade war, but we have not tried to estimate what impact this is going to have for us. So we are not very much involved in that trade, but that has, of course, an impact on our business because those ships that carry methanol will, of course, chase chemicals if they don't carry the methanol. But the same, we haven't tried to speculate the impact yet.
Needless to say, if there is a trade war and if there are duties being imposed, it's going to have a big impact on our industry, no doubt about it. I don't know. What do you think? Maybe more shortfalls. Yeah.
Let's just all hope that this doesn't happen. How much of your COA book do you renew in this month? COAs are evenly spread throughout the quarters. So it is yes, evenly spread. And do you think doing that the same today will be even more challenging discussions than it was three months ago?
There is optimism in the market. So I don't think that we will see we did see some contracts renewed at double digits in the third and the fourth quarter. I don't think we will see that. So somebody wrote that it's been leveling off. I believe so too that I don't think that they will be going further down.
But are seeing we're not able to get increases at this time.
And last time you were here and
you talked about the banking market, a little bit challenging, but that you would say profitable, shall you say, at all? Reflecting the challenging market, yes. So I still hope that we will remain profitable. But if we're not able to start increasing the contract rates, we will have a challenge in remaining profitable in store tankers. Of course, again, the bunker prices have a big impact on it too.
Are today at the bunker price where we are now not paying back money to our customers. We've come now to a level, as you saw, that we were getting a payback from our customers. Any other questions here in Oslo? Then operator, let's see if there's anybody on the phone that has any questions.
Thank There are no questions on the phone at this time.
Okay. Any further questions in Oslo before I close-up? Thank you very much for listening in. That completes our first quarter twenty eighteen earnings presentation. Thank you.
Thank you. That concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.