Ardmore Shipping Corp (ASC) 2014 Q2 法說會逐字稿

Please standby, we're about to begin.

Good morning, ladies and gentlemen, and welcome to Ardmore Shipping Second Quarter 2014 Earnings Conference Call. Today's call is being recorded and an audio webcast and presentation are available in the investor relations section of the Company website, ardmoreshipping.com. We will conduct a question and answer session after opening remarks. Instructions will follow at that time.

A replay of the conference call will be accessible any time during the next two weeks by dialing 1-719-457-0820 or 1-888-203-1112 and entering passcode 2951568. At this time I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.

Thank you very much. I'd like to welcome everyone to Ardmore Shipping Second Quarter 2014 Earnings Call. First, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements.

Thanks, Tony, and welcome everyone. Before we begin our conference call, I would like to direct all participants to our website at ardmorechipping.com where you'll find the mentioned this morning Second Quarter 2014 Earnings Release Presentation. Tony and I will take about 15 minutes to go to the presentation and then open up the call to questions.

Turning to slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in our Second Quarter 2014 Earnings Release which is available on our website.

And now I'll turn the call back over to Tony.

Thank you, Paul. On today's call we will highlight our second quarter financial and operational results, discuss corporate developments, including acquisitions, provide an update on the product to chemical markets, then Paul will discuss our financial results, and then we'll recap and open up the call for questions.

Turning first to the highlight slide on page 5 of the presentation, we're very pleased with our progress in the quarter. Following our equity raise in March, we acquired three high-quality MR product tankers, one 2013-built Eco-design MR and two 2008-built MRs, both of which are suitable for upgrade to Eco-mod.

We signed a $39 million credit facility with Credit Agricole, which completes our debt financing for the new building program. This is our first loan transaction with Credit Agricole, and we look forward to working with them on future financings. And last week, we signed an agreement to upsize our existing senior loan facility with ABN, SEB and Nordea by $53 million, which brings the facility up to a total of $225 million.

Second quarter was a challenging one for tanker companies. But if anything, it highlighted the merits of maintaining a balanced employment strategy with a mix of time charter and spot exposure. Our strategy continues to focus on short-term time charters, but we're also prepared to trade spot as opportunities arise in order to maximize returns.

During the quarter, we entered into four-time charter renewals in which we saw a -- to shorten the time charter [expiries] to place the next renewals into what we anticipate will be much stronger winter market conditions.

We've also placed two of our recent acquisitions in the spot market in the Atlantic basin where they're performing very well in the recovering market. Two of our vessels underwent drydockings in the period. The Seafarer completed its drydock on June 23rd and the Seamaster on July 25th.

At second quarter we're reporting EBITDA of $5 million and a net profit of just under $100,000. Adjusting for certain noncash overhead items, EBITDA was $5.3 million and the net profit $400,000.

If our fleet were fully delivered, we estimate that net income for the second quarter would have been approximately $3.5 million based on current charter rates or about $0.14 per share.

And finally, we declared a cash dividend of $0.10 per share for the second quarter, or annualized $0.40 with a yield of 3% at our current stock price.

Turning to slide 7, on acquisitions, as I mentioned, during the quarter we acquired three high-quality MR tankers at attractive prices. The Ardmore Endeavor is a 2013-built Korean Eco-design MR which we acquired at the end of May for $36 million. The vessel delivered to us in the Atlantic basin at the end of June, affording us the opportunity to commence trading and recovering spot market. The vessel is loaded with ULSD in the US Gulf and is en route to Europe for discharge.

The Ardmore Sealifter is a 2008 Japanese-built product tanker which we acquired in June for $23 million and which also delivered to us in the Atlantic basin in July, and is now engaged in the spot market with just commencing her first loading in Venezuela for Europe with naphtha and gasoline parcels.

The third vessel will be renamed Ardmore Sealeader and is expected to delivering late August in the Far East. We're considering employment options at the moment.

These acquisitions reflect the continuation of our measured and disciplined approach to building the business, and are accretive both to earnings and NAV.

It's also worth highlighting at this point that the Company's leverage to NAV is highly attractive relative to our peers. But every $1 million increase in per vessel value across the fleet resulting in just under a $1 increase in NAV per share.

Turning next to slide 8, our chartering strategy continues to focus on one year or shorter time charters. As mentioned earlier, the weakness in the spot market in the second quarter highlighted the merits of maintaining a balanced deployment strategy. For Ardmore, the chartering center of gravity is a one-year time charter, but we engage in two [other] TC as well as pool employment and spot trading as we see opportunities to maximize returns.

We continue to add high-quality names to our customer list and have commenced commercial relationships with Maersk Group and Trafigura in the second quarter. Our charters continue to value our approach to customer service and operational excellence. While the rates we are fixing are attractive, our customers are also benefiting significantly from our high fuel efficiency and commercial partnership approach, so it's a win-win.

Looking to the third quarter, we expect to have 80% of our revenue days for the five Eco-design MRs covered by time charter employment at an average rate of approximately 15,800 per day before profit share, and 20% of revenue days employed in the spot market. With the Eco-mods, we expect to have 71% of our revenue days for the first five vessels covered by time charter employment at an average rate of approximately 13,800 per day and 20% in the spot market.

Three of the time charters renewed in the second quarter are at monthly escalating rates. So the TC rate for the third quarter represents the low end of these time charters. And the subsequent quarter will benefit from correspondingly higher rates given that the average for the total charter period is 14,200. For the chemical tankers, we expect to have 33% of our revenue days covered by time charter at a rate of approximately 13,500 per day and 67% employed in the pool.

We've achieved solid operating performance during the second quarter and look forward to managing out charter and portfolio to optimize returns as market conditions are anticipated to improve through the remainder of 2014.

On slide 9, we highlight the progress we're making with our new building program. Notably, all of the ships are on schedule and our site teams are very pleased with shipyard performance and quality of work. In July we held a naming ceremony in Japan for the first of our chemical tankers at Fukuoka, named the Ardmore Cherokee, and scheduled to deliver in November of this year.

Our new building program at Hyundai Mipo is also progressing well, and we expect to take delivery of these two vessels in January. The remaining seven new buildings delivered throughout 2015.

Turning to slide 12, the product tanker market. As mentioned earlier, the spot market for product tankers extended its soft period from the first quarter into the second quarter, making for very difficult conditions for ship owners and traders alike, in particular, in the Atlantic basin.

While the MR market tends to be one of the more stable sectors, it too is subject to volatility. And this was evident in the second quarter as rates in the Atlantic Basin fell sharply, with TC2 declining at world scale 80, and TC14 at one point below world scale 70. During the period, the market in the Far East however remained more stable.

Looking specifically at the Atlantic Basin, the main reason for softness in rates was the steep decline in PADD3 or US Gulf refinery output, which resulted in a decline in US products exports. In addition, cargo distances for exports were much shorter as oil refiners and traders opted for more profitable markets closer to home for what product they had export. As a consequence, the MRs were trading on shorter voyages with reduced volumes, a double hit on demand and a result in decline in charter rates.

During this time, LOR is encroached on MR trade as well, due to lack of demand for their own long haul trade which centers on naphtha movements. PADD3 output, which initially consumed in the cold snap last winter. And then refineries went into turnarounds that were deferred or delayed during the period of high domestic demand and restocking. Plus there were some additional unscheduled outages.

PADD3 utilization for refineries bottomed out in June at 84%, and jumped back quickly. So it's now back up to 94.8%, which represents an incremental 900,000 barrels a day or close to 1/3 of the US product export.

As PADD3 volumes are ramped back up, long haul MR trade to Europe has returned and rates have improved significantly in the last few weeks. TC14 recovered from world scale 70 to world scale 150 two weeks ago before settling in last week at 135. TC2 was initially hurt by the influx of gulf [tonnage], TC14 ships coming in from the US Gulf, but it's also recovering and currently sits at world scale 95, which yields a TC2, TC14 triangulation TCE in the high teens or low 20s.

[MRs] market has remained steady through the period with the TC11, TC4 combination earning in the mid teens.

The naphtha trade has also picked up and LRs are returning to their core trade and evidently no longer putting pricing pressure on MRs. In addition, the new condensate export from the US should draw MR and LR tonnage out of the Atlantic Basin and should increase aggregate demand across the product sectors meaningfully.

East of Suez, the end of Ramadan, around now, should lead to increased refinery and trading activity in the region.

We believe the spot market will remain choppy for another month or two, then should be in a good position to fully recover this winter. In the mean time, there are patches of strength, which we will seek to exploit. Once the outlook becomes clearer for the spot market, conviction should also return to the TC market.

The marketing condition such as this, though, operational performance and relationship continuity is the key to success. But looking to the medium term, the outlook is still bullish.

Refinery and product export developments continue to support demand for product tankers, driven by a number of factors. Inefficient refineries are continuing to shut down. New world scale refineries are coming on stream, so that voyage distances are increasing as our volumes moved at sea. And there is an increasing complexity of trade driven by regulatory changes.

Underscoring this point, two large 400,000 barrel per day refineries are expected to come on stream in the Middle East by the end of the year. The Yanbu refinery in the Red Sea is expected to produce, out of the 400,000 barrels per day, around 250,000 barrels per day of diesel, along with commodity chemicals such as benzene.

Abu Dhabi's Ruwais, 400,000 barrel per day refinery, went into testing in May and will be commissioned toward the end of the year.

On the supply side, the MR order book stands at around 293 vessels, which is 17.3% of the fleet based on dead weight.

From the 1st of January to the middle of July, 55 MRs thus far have delivered. But 19 have also been scrapped. And it's possible that number is higher due to a reporting lack of scrapping activity. So this implies a net fleet growth continuing at around 3.5% as against an estimated 4% to 5% demand growth.

A notably new order so far this year in the MR sector have totaled 38, far less than deliveries. So the size of the MR order book is shrinking. It's also worth mentioning that many of these orders are more chemical tanker than product in terms of their intended trade and capability, although they're still classified as MRs.

Sale and purchase activity has been at low levels for the past several months, probably due to the softness in the spot market and the difficult market conditions or shipping equity issues. We'd still have dry powder and we'll consider acquiring vessels in line with our strategy.

Turning now to page 13, the chemical tanker market. Commodity chemical tanker rates have remained steady in the second quarter despite the softness in the product tanker market. In the first half of the year, our chemical tankers have carried around 70% chemicals and vegoils in about 30% CPP. Our first chemical tanker new build is expected to deliver in November and we have considerable interest from charters to the ship.

We are keeping our options open on employment, so we can look at TC, [pool], or direct spot market trading depending on what looks to be the maximizing strategy for our rates. Longer term, the demand drivers for chemical tankers remain the same. Continuing US petrochemical expansion driven by shale gas, Middle East Gulf Export Group, and underlying demand driven largely by emerging economies. The chemical tanker order book has expanded currently at 132 ships but remains relatively below at 11% of the world [fleet] by deadweight.

A number of stainless orders are non-core shipyards that we should expect at least some delays given the complex nature of the ships and expertise required to build them. Overall, [delivery/scrapping] or net fleet growth remains through the time being very muted at less than 2%. And with that I'll hand the call back to Paul to discuss our financial results.

Thanks, Tony. Starting with slide 15, I will [highlight] our financial and time travel performance in second quarter and also provide an update on financing in the period. The Company's earnings continue to grow as we took delivery of three ships in the first quarter which were in operation for the full period of the second quarter. Rates have improved year-on-year all these with some softness in the spot market during the period.

The Company has reported adjusted EBITDA of $5.3 million which represents an increase of $2.4 million from the second quarter 2013. Revenue for the second quarter was $13.8 million, an increase of $5.5 million from the second quarter 2013. Operating cost for eco-design vessels for $5,960, an operating cost for Eco-mod vessels were an average for both product and chemicals $6,704 per day in the first half of the year.

Depreciation and amortization for the quarter was $2.9 million and we expect the depreciation and amortization in the third quarter to be approximately $4.2 million. Corporate overhead costs were $1.9 million in the second quarter and we believe that overhead cost is and will continue to be among the lowest of our peers. Our interest and finance cost were $1 million as compared to $1.4 million in the second quarter of last year. Interest and finance cost include capitalized interest related to new buildings in the quarter of $900,000 and we expect the capitalized interest in the third quarter will be around $1 million.

The [above] resulted in the net profit for the second quarter of $94,000 or around half of that per share. After adjusting for non-cash stock-based compensation the profit was $428,000 are just under $0.2 per share.

Looking more closely at TC earnings on slide 15, we will start with Eco-Design MRs on the right-hand side. Company now has five Eco-Design MRs in operation which earned an average of $15,859 per day in the second quarter. The Ardmore Endeavour [commenced in] the spot market at the end of June and we expect their earnings from its first voyage to be in the mid teen.

Moving on to Eco-mod MRs. On average for the second quarter of Eco-mod MRs in $14,710 per day which represents an increase of $1,000 a day over the same period last year. The Ardmore Sealifter delivered to us on July 22nd and we expect our earnings in the first voyage to be in the middle to high teens.

Moving next to chemicals. This market remains steady. On average the chemical tanker (inaudible) $11,206 per day which is an increase of over $1,000 per day over the same period last year.

In summary, we are pleased with our charting performance. We are one of the reasons softness is very well and position the fleet to take advantage of an improving market. The Company's charting strategy ensures stability in earnings and maximizes returns on invested capital.

Looking next to the balance sheet on Slide 16. As of the end of June, our total debt was $158 million as compared to total capital of $498 million meeting our leverage at 32%. Our cash on-hand was $66 million and after deducting the balancing payments for the Sealifter and Sealeader and adding (inaudible) agreed last week, gives the Company dry powder for further acquisition.

Turning now to slide 17, our financing. As mentioned, we have completed arrangements for financing [our false lead] with exception of the Ardmore Seamariner. And we expect our debt financing in place for that ship shortly. During the second quarter, we completed a $39 million facility with Credit Agricole for two chemical tanker new buildings. And last week we signed documentation to increase our existing large [fleet facility] by $53 million to $225 million by the three most recent second-hand acquisitions.

We continue to maintain financial flexibility and [deemed] our relationships with our excellent group of high quality shipping banks.

Now turning to slide 19, I would like to turn the call back to Tony for some closing comments before we open up the lines for Q&A.

Thank you, Paul. In summary then, we achieve solid operating and financial performance for the quarter during which the Company turn profitable. We have weathered the difficult two quarters impacted by week chartered market, but we believe the outlook is again positive as the market is showing big improvements in the Atlantic basin.

Our balanced fleet employment has ensured cash-flow and earnings stability through this period and we've added some spot market exposure to the fleet as well. Our expansion fleet is now fully funded which is just one second-hand vessel remaining to be financed and which should be completed shortly.

We've taken avenge to the sweet market period to acquire additional high quality vessels at good prices. We have dry-powdered for further acquisitions, but with 24 ships in the water were on order, we don't feel compel to do anything unless we see attractive opportunities.

We remain as ever focused on building long-term shareholder value, which at the moment involves maximizing upside in the market recovery. And we continue to pay a dividend of $0.10 per quarter representing a yield of 3% at today's stock price.

Thank you for your time and we're now pleased to open up the call for questions.

If you would like to signal for a question, you can signal by pressing the star key followed by the digit one on your telephone keypad. Keep in mind if you're using a speaker phone, make sure the mute function has been released to allow the signal to reach our equipment. Once again, star one for questions.

And we'll take our first question from Jon Chappell of Evercore.

Thanks. Good morning, guys.

Hi, Jon.

Tony, I think by my count you guys used the term dry-powder three times. So once the Seamariner is financed, what do you going to have from a liquidity standpoint to acquire assets its opportunities present themselves? And then, kind of taking that to the next level if you could arrange financing its similar terms to achieve enable to for the three ships that you just purchased, what could the total potential out maybe for their fleet expansion?

I also use the word recovering -- the phrase recovering market seven times, so.

I'm going to get to that next.

Okay. Good, good. It's a good question, but I really don't want to get into specifics on what our plans are. We feel we're in a good position, we've got a good amount of liquidity and we're financially well-positioned. And we'll continue to look for acquisition opportunities that we think they're attractive.

Without giving your plans away, I mean, can you give us a broad idea of what the potential outlay could be, I mean, if we look at what you spent in the last couple of months? I guess 46 million and 36 million, so you spent a little over $80 million, I mean, do you have that much dry-powder left? Do you have half of that? Just of ball park what the potential spend could be.

I think it's a meaningful amount, but it's not enough to necessarily transform the Company. So as you know, we tend to be very patient in client and picking off opportunities and I think you'll continue to see us do that.

All right. And then as the opportunities are concerned, we just spoke a couple of months ago about this at the investor day, but will the target still be on the water versus new builds and then, also MRs not because you're not optimistic and chemicals because there's really no ideal chemical candidates available?

Yes. I think our focus is still in the water as opposed to ordering new. Although, there could be some attractive resell opportunities as well, but we would look to buy ships that are delivering fairly soon.

Right.

In terms of chemical versus product, it continues to be the case that there are more attracted MR candidates than chemical which you know the flip side of that highlights the attractiveness of the chemical sector. In the outside it's just a more difficult market to build exposure and we like the outlook there. And 6 of our next 10 new building deliveries are chemical.

All right. Just one more on the charting strategy, seven months a weird time horizon, I mean, are you picking that yourself? Because that lines up perfectly with your outlook for the market recovery or is that something that it's basically the duration in the market today from charters?

They're not all precisely seven months. It's a variety, but that's the average of what we've done. So we do have a very clear view that the market should strengthen and recover this winter. And until rather than rolling ships for year and to next summer, we thought it would be good to optimize by putting them into the winter for renewal.

Right. Okay. That makes sense. Thanks a lot, Tony.

Sure.

And we'll take our next question from Doug Mavrinac of Jeffries.

Great. Thank you, Operator. Good afternoon, guys. I just had a handful of follow-up questions with the first being on that market recovery theme. Tony, in your commentary, you talked about how the LR markets are really starting to gain some traction here; and over the last couple of weeks we've seen some pretty big gains in each of those markets.

My first question is to the extent that some of those gains are sustainable, as an MR operator, how will that affect your business? I mean, will it be just the LRs will be competing as much? Will there be some trickle down demand? How do you see to strength in the LR markets affecting you guys if at all?

I think on the margin, it pulls (inaudible) competition for MRs because of the rate is low and our fundamental (inaudible). Then, (inaudible) to makes sense for traders to use them instead. So I think that was definitely happening in the second quarter in the early on.

Got you.

Now that you know the command for LRs on their own cup of core, long whole trades of and as rebounded as well. They're being sucked out, so they're not as much as the factor right now.

All right. Got you. Thanks. And then Part B of the market recovery thing question is that being the case and obviously, you pointed out I think a big issue at the MR market in 2Q and how we're seeing the rebound with (inaudible) refining capacity in 3Q. I guess it would be too much of a stretch to think that if that's happened to LR market, US exports coming back in the MR market, then the next several months should be good. I mean, it's not too much of a stretch would you say?

The strength is really emanated initially from one spot which is US Gulf. And I think it has taken a while for that spread out more broadly to absorb all the tonnage in the Atlantic basin and then spread into East as well. But, yes, it's definitely the case.

I think also can underestimate the potential impact of the [new common trade] export. It seems like most of it have gone all at once but it could be some MR. And in any case it will reduce that marginal competition as well.

Got you, got you, got you. Thank for that, Tony. And then, the second question, the question was 1A and 1B. Second question is about charter's appetite. Jon touched it on a [bit to go], but asked in a different way. Are you guys seeing an increase in appetite from charters to secure time charters? I mean, do they recognize that rates are pretty low right now and about to increase? And if so, what does that divergence and interest on the charter's side to tell you compare to where the spot rates may be?

Yes. We got the sense that we're still a little bit cautious. But also, we're very opportunistic at the moment. So if they can find good ships at lower charter rates that's what they're going after right now.

Specifically, they like to be able to envision an initial voyage with the ship they take on TC as profitable. And then they can punish from there. So I think that opportunity is coming back now. But at the same time we still have owners that, you know, willing to accept lower levels and perhaps, they should simply get covered.

Right, got you. Got you.

We will think awhile for that to work out as well.

I hear you. Okay, great. Thank you. And then just a final question. And I was going to ask about your growth strategy going forward now that you've adjusted or about to finish adjusting the last delivery of your second hand acquisition and then financing supplies and all that good stuff. And I get that you guys don't want to show your hands. So I'll ask maybe a little bit different of a question but in the same context.

And that is in terms of your growth and how that is balanced against what you're going to do with the cash that you're going to be generating because it's your [fleets] delivered. And as you mentioned, you're going to be generating a lot of income, a lot of cash, how do you think about balancing that growth with what your dividend could be? Because it's already attractive of $0.10 a quarter, what are your thoughts about the balance of those two and then where we are on the cycle with that and just with that as a backdrop?

So it's an excellent question. And that's something we could just have to, you know, kind of debate and decide on as we go forward. So we've always said that we will continue to monitor the dividend policy and as the fleet delivers and the market conditions dictate, we would consider increasing it but only to a level that we feel would be sustainable on a long term basis.

So that's one factor. You know, in terms of further acquisitions with [retained] cash or with internally generated cash will -- it really depends on where we are in the cycle. So if we feel that we're moving out of the bottom third into the middle third or even the top third, we are not necessarily going to be chasing ships at high prices.

Right.

But then it's a question of what do we do with the cash that's building on the balance sheet.

Right, right.

So probably the biggest challenge in our business is finding the conviction and the resources to buy at the right time; and then finding the discipline and integrity to do the right thing with the cash of a strong market.

Right. Got you, got you, got you. That's all very helpful. Thanks for the time, Tony.

Okay, thanks.

Operator: We'll take our next question from Noah Parquette of Canaccord.

Thanks. A lot of my questions have been answered. But I guess, can you just give some more of your thought process on chartering the chemical tanker ships as they're delivered over the next year or so?

Yes. We've been spending a lot of time visiting all potential candidates for as partners or charters, or managers, whatever. And so we're looking at a broad range of alternatives and it really literally stands the (inaudible) from one-year TC pool to spot trading to joint venture and et cetera, on a commercial basis.

So the ships are highly attractive, not only are they very flexible from a chemical commercial standpoint but they're really among the first Eco design chemical tankers coming out. So they're going to be significantly more fuel efficient than the competition they face when they come in to the market.

So we're excited about the ships and we think they're going to do very well. I think we tend to start cautiously and build in risk once we get comfortable with things operationally and we'll probably take the same approach on this as well.

Okay. And then you touched on it but is there any more color you can give on the [common trade] export ruling and how it would affect MRs? I know it's been on LR so far, but...

I mean, it's an interesting one. We don't really have a sense of the volumes yet but we're reading everything we can on that. So far it seems like the focus is on LR1 so I guess that if you can go to Panama Canal to Korea, which seems to be the big destination because they're going to use it I think basically for petrochemical manufacturing since most of it is naphtha.

So either indirect legal benefit because we'll take LR1s out of competition where it exists and maybe draw some MRs into what might even be other LR type business. But also, I can envision a lot of it, but some of it, anyway, moving on MRs because it's a very flexible size. So it depends to the degree on cargo lot sizes as much as anything else.

Okay. That's very helpful. Thank you.

And once again, that is star one to signal for a question. And we'll take our question from Fotis Giannakoulis of Morgan Stanley.

Yes, good morning, Tony. And thank you.

You mentioned that the market is improving in the second half of the year. We saw that the first half that was quite weak. How do you see the selling versus market developing going forward? Are you afraid that there's going to be more demands for acquisitions from the overall market that could push the price higher or the weakness of the other shipping sectors might keep prices at attractive levels?

Yes. I think it's probably those will both factor in to what happened. So obviously, if the spot market and then the TC market strengthens there will be increased interest in willingness to pay up and that could quickly add a couple million per ship in value. In terms of other sectors -- yes. I mean, obviously, if the rest of the world shipping is leaked then it probably tends to keep it after on the appetite of buyers that have (inaudible).

But we'll just have to wait and see how it plays out. We would anticipate that everything else being equal as charter rates improve, vessel value should improve as well.

And what do you see the value of the five-year-old MR product tanker right now?

Gosh. It depends on the stock and et cetera but it's mid 20s -- yes, mid to high 20s.

Okay, thank you. And regarding the improvement that we have seen lately, what have been the main drivers over the recent gains in the rates and going forward in your presentation, you're talking about 293 MRs, where did you expect that these vessels will be deployed and which trade lanes are going to be absorbing these vessels to the US exports or more Middle Eastern and Asian refineries and where this volume is going to go to?

So, the first question was on the increase in demand?

Yes, yes. If you can explain which trade lanes they are going to develop and how will order book going to be absorbed?

Got absorbed, okay. Yes. I mean, specifically we think that the increase in demands is coming out of the US Gulf. Now that the refinery output is recovered and it's heading on relatively longer distance, that was a sharp bounce back and that's going to cut the market back to perhaps where it should have been or we'll get it there pretty quickly.

Then in the Middle East, you got these new refineries coming on stream that the Red Sea product coming out at Yanbu could very well find a home in Northern Europe, that's a lot of diesel. And that's actually almost the same voyage length than it is from the US Gulf to Europe. So one versus the other isn't going to have a big impact on tonne mile demand.

So I think once you get beyond a couple of specific things, it's just the ongoing process of old refineries closing down, new refineries coming on in a complexity increasing in the trade, et cetera. So you remember that the graph that we showed a couple of times in the past showing where MRs trade is currently and it's literally all around the world.

So I think you can rely on all the new ship coming out to be deployed virtually everywhere. Now they're going to start in the Far East but they'll work their way West with cargo to be US West Coast with palm oil to Europe, et cetera, and they'll work from there. But we think that the East of Suez is also a growing market and a lot of them might stay there as well.

Apparently, the Eco designs do very well on the Korea, Japan and runs downs to Australia because it's a relatively long trait. So I think one point to make is that generally speaking, you're going to find the Eco designs settling in to long haul runs where they can get the most benefit from the fuel efficiency.

And this long haul runs, you're kept talking about MR vessels or VCs going to be more in a large trade and what exactly is going to be the difference between LRs and MRs both in rate but also in terms or trading? Are there any specific rules that they are more suitable for one versus the other?

Yes. I mean long haul for MRs means US Gulf to Europe or US Gulf to West Africa or Europe down to West Africa, or Korea, Japan down to Australia. Those are relatively long runs. For LRs, the classic run for an LR is naptha [AGEs] which is a very long trade, you know, up to Korea- Japan. There's also a naptha that runs from Northern Europe, that's the Far East.

So they're obviously engaging and they are better suited to engage in much longer haul trades than what we would consider a long haul for MRs. And that's where you'll see from settling in.

Thank you, Tony. One last question about this agreement that you have with Vitol, if I remember well about having some vessels in their pool, how does this corporation is developing? And are there any [discussions] of potentially expanding this corporation especially now that some of your -- you have more vessels available?

Yes. So we have two ships on TC to be (inaudible) at the moment and then the four MRs delivering next year will go into the commercial pool with Vitol two a total of six. And we continue to have a closed dialogue within them and look at opportunities together.

But at the moment, you seem that you recently acquired -- you are operating on your own. What is the commercial strategy for these ships?

Yes. So we're spot trading them opportunistically with using another operation for commercial management.

Okay. Thank you very much, Tony.

You're welcome.

At this time, there are no more questions. This concludes the Ardmore Shipping Corporation conference call. Thank you and have a nice day.