Scorpio Tankers Inc (STNG) 2015 Q3 法說會逐字稿

Hello and welcome to the Scorpio Tankers Inc. third-quarter 2015 conference call. This call is being recorded. I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead sir.

Thank you and thank everyone for joining us today. On the call with me are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; and Cameron Mackey, Chief Operating Officer. The information discussed in this call is based on information today, as of November 4th, 2015, and may contain forward-looking statements that involve risk and uncertainty.

Actual results may differ materially from those set forth in such statements. For a discussion of these risk and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today, as well as Scorpio Tankers' SEC filings, which are available at scorpiotankers.com.

Call participants are advised that the audio for this conference is being broadcast live on the Internet, and is being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

On the call there will be a short presentation with slides and the slides are available on the Investor Relations page under corporate presentation at scorpiotankers.com. Now I'd like to introduce Emanuele Lauro.

Thank you Brian and thanks everybody for joining us today.

In Q3, we are focused on execution. We have taken delivery of the vast majority of our new buildings by now. We have passed the stress test of the deliveries. This doesn't mean that we can relax because of course running such a big fleet comes with challenges, but we're getting to a phase where the "only problems we have are on the ships rather than at shipyards."

The Company is entering in a more mature stage. We're committed to maintain a balance sheet discipline as well as a leverage discipline. We have started refinancing our credit facility. Some came to maturity and some we felt appropriate to start refinancing as it would take months and not weeks to do so.

As we mature, cost of capital of course on the debt front has decreased and we want to capitalize on that, not rushing into it, but rather just being aware of it.

The third quarter was a great quarter in freight-wise. Q4 instead started softer. In relative terms, we expect the winter to be a strong one, but we don't know whether this is going to be a great winter or just an okay winter. It's so difficult to predict quarterly movements, but what we believe in is rather a multi-year growth for product demand.

And we also believe that charterers have the same view as ours, so charterers, end-users have the same view or share the same view as us and this is demonstrated by the time charter coverage which we've announced very recently on two of our ice-class MRs and on one LR2.

So we have a quality fleet with a quality balance sheet and if we manage to use the same quality in our capital allocation in the options that we have in our capital allocations, we believe this will ultimately result into quality earnings for the Company and dividends.

We feel of course that we are at a point in the market where with the fleet delivered and the quality assets that we have, we can look at the future with optimism. As I said before, we just don't know to which extent the short term is going to be good or great.

With this, I'd like Robert to take over and go through the few slides that we have.

Good morning. As Emanuele said, we continue to see further verification of strength going forward in multi-years and at secular and sector demand growth. What we're also seeing is we've seen that the forward supply as a percentage of the fleet on the water continues to come down. This is quite encouraging.

There has been some recent new ordering including ourselves to try and get ahead of the Tier III regulations, but we would expect ordering of vessels to slow down pretty quickly as the top quality yards are pretty well full up now in 2017. But we'd also like to introduce something on the supply side that hasn't been a factor in the product market up to now which is sort of reduction in real trading supply as a result of aging.

In the product market, it's much more critical than the crude oil market or the dry cargo market to have vessels that are less than 15 years for top quality customer preference and terminal approval and thereby earnings.

And if we go to the first slide, we can see that the Scorpio Tankers fleet is an extremely new one, and on the surface the entire product tanker fleet looks reasonably new, under 10 years in average.

But if we then move to the second slide and we look at the particular areas, we look example at Handymaxes and we take the present fleet that's under 15 years old which is 332 vessels, 26 vessels next year are going to turn 15 years old, followed by 21, 33, 32 and these are quite significant percentages that are going to be removed from the premium freight.

In the next slide, we can see the MRs as well. In the MRs, we start off reasonably slowly in 2016 with 18, but it really starts to gather pace as we move back through the years, and that in combination with a order book that has come down in percentage going forward and the fact that 2017 is virtually covered is going to -- coupled with the growing demand story, we believe create a multi-year period where a new fleet with access to reasonably efficient financing on the debt side that is already reasonably leveraged, that maintains its discipline related to leverage is going to have an opportunity for many years to provide quality earnings and ultimately an improvement in quality on dividends too.

With that, we'd like to open it up to questions please.

(Operator Instructions) Gregory Lewis, Credit Suisse.

I guess Emanuele or Robert, a bit curious on your thoughts around -- and Emanuele you mentioned that capital allocation. I mean clearly we've seen a nice ramp-up in operating cash flow this quarter, it was well over $100 million. You're talking about quality of dividends. It looks like you may have actually paid down some debt this quarter. If you could just kind of highlight how you're thinking about using the cash flow that it looks like the Company should be generating, not only in the near term, but let's say -- let elicit it and say through 2016, I'm bit curious about that.

Sure. Sure. Now this quarter I think was one of those sort of exceptional quarters where you could really do a bit of everything. You could pay down debt. You could buy back shares. And you could take deliveries to -- of new vessels to -- and create optionality going forward in your fleet for growth too.

And going forward, we believe that fundamentally we have those same options. But the first point is that you have to maintain your debt discipline, so you are going to -- despite having a lot of flexibility, you are going to try and move your debt equity ratios down towards the sub-50% level.

That could happen quite rapidly and we expect it to happen pretty rapidly. Then you start to look at your alternatives. I mean we've pretty well laid out our position in terms of continued fleet growth, so I don't think we're going to really have much more of that in the next month. You're going to go into a stable period where the work is really done.

We don't feel any anxiety that we need to buy vessels. We've got a lot of operating leverage going forward and we've set out -- are still going forward there. You've obviously seen that we have in the announcement $200 million-plus left on our securities buyback and this is always a go-to place when the stock is -- when we think we can buy stock at a price that doesn't reflect the longer term value of the Company, especially when you're not actually being paid very much in the bank on a current account.

So it's really sort of nothing too aggressive either way. I don't think we're going to be adding many assets. And I think that we, with the cash flows, will be able to both take -- both deleverage and probably take it -- have the opportunity in a volatile stock market to sort of engage in buybacks on the way.

But it's really a little bit of delayed gratification. I mean a few months of STNG just doing not very much will create a balance sheet and a fleet that will be fantastic and we also think, as Emanuele pointed out, that over the next coming months we will materially improve our debt financing. There's the lenders, they're giving us credit for the -- let's say the maturing of the Company, the EBITDA, the trailing EBITDA, the forward potential EBITDA even on modest rate structures.

But we believe that the market will provide us with, as Emanuele said, somewhere between good and great. We just don't know which of those two it is.

Okay, perfect. And then just one more from me. Just as you see the next few months or through the winter developing in terms of the tanker market, I mean clearly you gave guidance on what's been done through this quarter, pretty healthy levels. As -- how do you -- I guess are you -- we seeing any signs for a potential strengthening in the winter market?

And just as -- to dovetail on that, is there any visibility or are customers approaching Scorpio or are we seeing more inquiries for customers in the market to actually take some more of these not as -- I'm not as curious as on one-year charters, but on sort of the multi-year charters, just if -- any color on that I think would be pretty helpful.

Sure. So --

I think the assets -- you go Robert. As you prefer.

Okay, I was going to take the first question. Sure, I think that as we pointed out I mean, yes, the rates in the trailing weeks in the present are weaker than the third quarter. But relative to historically how rates start in the fourth quarter, the rates are actually pretty strong.

So therefore you've got a solid foundation. There's not much loose capacity out there. The Asian markets are functioning well. The real weakness at the moment is in the Atlantic Basin.

And at some point winter will come and you're starting from a reasonably tight supply and demand point. The other thing is that we think in this new world, the winter period is actually most probably and has been now for a couple of years extended.

We used to think the product market ended somewhere around March and April, but it's now being extended into June and July because of the shifts in demand and the fact that we're now working not just for the northern hemisphere market, we're running a southern hemisphere market too.

When it comes to your customers, your charterers, there are two forms the charterer is showing confidence in. One is the time charter that you alluded to, and yes, we would think that there will be continued opportunities to take three-year charters.

We don't really want to -- or longer, we don't really as usual want to trade those out in public on a conference call. So we're not willing to discuss now how many at any particular point or what percentage we would get to.

It is, however, very clear that -- and without going into details, that when you have some time charter coverage, your lending position and the terms you are going to get from your lenders dramatically improve from a Company that is fully spot.

You would always like that certainty when you've got so much operating leverage. In an ideal world, you'd -- and this doesn't take a week to get to, you'd love to get to a situation for example where you can cover your daily exposure, cover your G&A, your interest rate costs, and your dividend cost. Then you're playing from real, real strength.

That could be achieved by -- you can do the math to yourself -- by using less than 20% of the fleet you can get to that number. The other form that security takes is not necessarily in time charters, but in contracts of the freightment or joint ventures with customers whereby they're giving you contracts that not just secure revenue price, but also enhance your triangulation or your ability to trade. Those things we will never discuss in a public forum.

Emanuele, do you want to add to that?

No I think you've covered it, Robert. I think you've covered it. Nothing to add from my side.

Okay guys. Thank you very much for the time.

Jon Chappell, Evercore ISI.

Just a couple of somewhat follow-ups to what Greg was talking about. First of all on the buyback, clearly the pace has slowed a little bit. Just trying to figure out how much of that has to do with a quiet period, how much of that has to do with retaining capital for the remaining new builds or even just showing the banks a stronger balance sheet as part of the refinancing process.

And then also given the release today and based on your answer to that first part, any likelihood that you would be re-ratcheting up the pace there given the stock pressure action?

Well, we don't know what the stock price -- we don't know what the stock price is going to be even by the end of today. But you're quite right that there was a slow down. That slow down was 100% to do with being in a quiet period. The Company must observe that of that situation.

It's -- look, there's $183 million or so of cash on the balance sheet right now. It's pretty clear any analysts can work out that now we are still significantly cash positive. So that $183 million is more than likely going to increase left to do nothing going into December.

We haven't really got many that much cash going out in terms of commitments to new buildings because they've either already been funded on the equity side as in the case of the LR2s, or in the MRs, your payment structure itself is very light. And that is also already being funded.

I mean it was 1 percentage down for six months. So you've basically got another five months before you have to put down a dollar and that's already being in the actual balance sheet at the moment.

So you have the capability and I don't think it would be right in terms of creating shareholder value, but asked to provide information allowing people to front-run our stock prices.

On the refinancing side, it seems like there's probably still a fair amount to go. What kind of savings are we talking about here? And if you can't do it in a dollar basis because you're still in negotiations, what type of change on the margin are you seeing as you've been negotiating with the banks?

Jon, it's (inaudible) speaking. If you look at the over -- the totality of our debts, I mean we have a lot of debt that was put in place in 2012 to 2014 when the Company was in less -- a less mature stage of its development. And also bank pricing generally was a bit tougher.

So there is a substantial scope for restructuring or repricing or repositioning of our debt at lower rates. And potentially there are savings of around 1% in interest cost. Now, obviously you save 1% of $1 billion of debt, that's $10 million a year that goes straight to the bottom line.

There are -- I think I don't want to get everyone's expectations up, but clearly even the Company can make progress in terms of restructuring its financing to make future benefits.

Thanks [here]. On the chartering policy, 10 of the 13 charterings expiring by I think May of next year, obviously you already retain a ton of leverage with your operating exposure, but you did exercise a couple of options here. How should we think about letting those roll off and just keeping the cost lower through just your own tonnage?

I think you just have to take them one by one. It's pretty clear that we've been running that time charter book generally down, but for example we're already indicating that customers out there willing to pay $28,000-plus for an LR2 delivering in February-March next year, and we have one of those charters that are in the very low 20s as an option to declare in December.

So I think that where you have got clear thought that you are exercising a charter that is in money to that forward curve, you are going to do it. But in total -- whether it's because some of those charters don't have any more options on them, in total you are going to be continuing to run down your charter book.

And that's part of it too here. You are de-risking. We have such a lot of operating leverage in terms of the amount of vessels and the quality of the vessel, but you are just de-risking over time the enterprise, whether or not it is improving your financing terms with the lenders, whether it is having less -- whether it's having more own tonnage that have cash breakeven significantly lower than the time charter in market, whether it is just generally bringing your total leverage down, this is what Emanuele was talking about earlier, you are having many mechanisms to just improve the quality of the balance sheet, the quality of the earnings, and ultimately the quality of return of capital to shareholders through dividends, et cetera.

Okay. One last quick one just on what you are talking about, getting closer to that returning capital, exercise options on four of these MRs, I assume that that got in under the Tier III deadline. If you were to exercise the other six, when would you have to do those to get them under the Tier III deadline? Are you kind of locked in there already, you're grandfathered in because they're options or is there a timeline which would (multiple speakers) --

Well, all the options --

Jon --

Sorry Cameron, go on.

Yes, we're just going to take a pass on that. No comment.

Okay, thanks again. Thanks Robert.

Yes.

Yes.

Doug Mavrinac, Jefferies.

Just had a couple of follow-ups towards what people has already asked, with the first being on the time charters that you guys announced last week, I mean obviously the quarter was great, a record quarter, but I think what was even more intriguing was last week's announcement of these time charters. My question related to those is, first, how deep would you describe that market, Robert? Would you say that kind of what you had secured is what was available or could you have done more vessels at those types of rates for that type of duration?

Well, I think that you have to look at it that we weren't looking it in that way. I mean the first stage is you're looking at it in different way. We looked at these first charters as an extension of our strategic chartering policy in the sense that we had great benefits in the Company in building a relationship with a major US Gulf exporter by having a couple of ships on charter which really created a much better platform of customer and service provider relationship on a daily trading.

Got you.

We were looking all along for -- as the sellout to market and major expands, we have been looking and continue to look for the right partners to partner up with there to enhance your spot trading position and we found a partner. And we have a lot of ice vessels, a lot of handy vessels and a lot ice vessels in a handy pool.

And we were really thrilled to create a better, again, customer-service provider relationship with a Northern European ice specialist trader or end-user. So we weren't looking at how deep was the market.

I mean I think you could pretty well take a quality vessel, a new building, top Korean-spec MR. Look, the market is reasonably deep, but at this stage we are still confident of the spot market, we would still expect that the next year if you take the next 12 months in total we'd still expect that those MRs would actually earn more than $20,000 a day.

But it is not a decision made on oh my gosh, we have to get deeper and do it, it's a very, very tactical position. And yes, we would like to improve it to have a nice, safe balance sheet, improve it by adding some more, but we will do it in a precise -- continue to do it in a precise way to enhance our overall spot market earnings through the relationships.

Got you. Very helpful, Robert. And then --

But if the market is deep for -- the market is starting to divide up, all right. This is partly what we are showing in those slides is that you are starting to have that beginning stages of customers do have choice now between those top -- the access for -- the ability for a top modern vessel to get fixed on three-year charter is obviously much higher than an older vessel among.

Right, very helpful. And then in addition to all of the benefits that you just described, would you say another could be that this is kind of the new benchmark for the time charter market? So in addition to kind of the business that you secured for Scorpio, is the rest of the market when you are talking to customers and even competitors, do they now know that for a three-year MR you're looking at something north of $20,000 a day and that's kind of the new --?

No, I don't think that's the case. I mean, first of all you've got -- I'm indicating that there is a specification of vessel and a relationship aspect to it. In other words, the customer on the other side of the trade might have said, wow, it's like you're sitting down as two adults. You've got a customer who is a big user of these vessels talking to the Company that has the most and then if you add the Group with the pools, absolutely by a long way the most ability to provide modern ships and I'm indicating that there is a subset in the trade behind that that is beneficial to both parties. I do not think that the three-year rate for a normal average non-ice MR is necessarily $20,000 a day right now, on a separate issue.

Okay, right, that's very helpful as well. And then just final question also, kind of as it pertains to the market, at the very top Emanuele talked about that we expect somewhere between good and great. My question for you guys is, you're sitting here, we're looking at the US Department of Energy reporting that refining capacity utilization is now picking up two weeks in a row.

We know (inaudible) isn't fully ramped up. We know that [Paradeep] is about to get started. So when you look at kind of each of those potential tablets coming up, how do you see that playing out? I mean do you think that it could affect the LRs first and then maybe see some (inaudible) to the MRs, or how do you see each of those dynamics kind of coming together in what could be somewhere between the good and great market over the next several weeks or a few months?

Well, you can go back to last year, okay. So last year the market ripped out after Thanksgiving, and -- but the first part of that period was so weak that despite the rip-out after Thanksgiving, the -- we reported last -- fourth-quarter 2014, we only reported $23,500 for the full quarter on LR2s and $18,600 for the full quarter on MRs while we've already in our earnings guidance now indicated [$19,000] for the first 43% and [$25,000] on the LR2s.

And that's what I keep saying that on a relative basis we're going into this change of season of a stronger level. And when Emanuele says it could be -- we don't know whether it's good or it could be great, it's like tell me what the weather is going to be like, tell me what delays in Houston are going to be like because you have a market that is fundamentally tight as indicated by what we've already released.

And a number of factors could come into playing to rip either the LR2s or the MRs up first. And there are a number of factors that could just make it a good winter like last winter for example. Last winter wasn't great.

I mean, remember that Scorpio Tankers on MRs delivered $18,600 for fourth quarter and first quarter only delivered $20,500. But still our trailing total earnings were well above $1.30. So that's what I think Emanuele is describing as good. Great can happen and there are many factors that could make that happen.

Yes, fantastic. That's all I have, Robert. Thanks for the time.

Noah Parquette, J.P. Morgan.

The question was regarding in your discussions with the Korean shipyards and given the financial distress over there, I mean how would you characterize the differences between your discussions several years ago? Is there more price discipline, is there some desperation? Just want some color along that.

Sure, I can try and take that for you. I think you're exactly right. I think there's two things going on. One is enhanced price discipline because you're in the middle or say the early innings of a consolidation of capacity, and also a -- let's call it capital construction base in shipbuilding.

So number one, you have increased price discipline. Number two is you haven't reached a stage of desperation, but what you have reached is a period of pragmatism between the state-sponsored creditors of the shipyards and the shipyards themselves about combining facilities, rationalizing production, rationalizing labor.

So this is proceeding, I would say not in a desperate fashion, but rather an orderly fashion. I can't say whether that's going to continue. It looks like it's proceeding. But of course it's greatly helped by the sort of the tough markets in offshore -- particularly in offshore, but also in (inaudible).

So would you view shipyard capacity in Korea in terms of the product tankers declining over the next couple of years, and do you see any other parts of the world picking up like how does Chinese quality compare now?

I do see or I think we as a Group see product tanker capacity and total shipbuilding capacity in Korea declining. I think we also see a declining in China. I think that the efforts that the Chinese government has made to consolidate their private and public facilities into two, say sponsored groups bodes well for rationalized capacity.

Of course they will try and move up the value chain in shipbuilding into tankers and containers and offshore gas. I mean that's inevitable, but some of the newer attempts at tanker construction have yet to be stable because that will play out over the next three to four years (inaudible).

Okay. And then just another question on Asian trade, I mean, you've seen kind of a glut of diesel and more product exports out of China. How is that changing trades and has there been any new trade routes or changing flows, has there been vessel congestion or anything like that that you've seen?

Yes, I could take a crack at that. I mean, what we're seeing of course is anytime you get an expansion of production capacity on products, it means both enhanced imports and exports because it -- that production exacerbates both the products in deficit and the products in surplus.

So some vessel congestion we think that might get worse particularly in north part of China as winter comes on, but it also positions a lot of vessels out there -- we still see a great deal of trade flow into Southeast Asia, Australia, New Zealand, Pacific Islands, all because these are now starved for products and the natural shipping point is either Korea or China.

Okay. That's very helpful. Thank you.

Spiro Dounis, UBS.

Robert, just want to go back to one of your slides on the 15-year-old vessels and maybe just trying to quantify the impact of what that could have. So obviously those vessels are done, all just get scrapped, they go somewhere. And I guess if I'm thinking about this right, let me know. Do they just go from being 90% utilized to 60% utilized and then settling that 30% delta gets made up by newer vessels and does that create a Tier 2 market or is there another way to think about what happens to those vessels?

There is some -- some of the premium trades. I mean at this stage it's not something you can quantify perfectly because it's going to become relatively new for now in the product market. It's -- you're correct, it's not the same as scrapping, but they're not going to -- you won't be able to triangulate them in some route. They will get shut out off entirely.

Okay, that makes sense. And then just, Robert, last time we spoke I got scolded a little bit for not asking enough questions about the veg oil trade and I don't think it's come up yet. So is there anything going on in that market that could possibly snap rates back before even the oil trade comes back?

Not in the vegetable oils, but in -- not instantly, not this second, but vegetable oils, palm oils are all growing in their demand. They're all long haul. They're all alternatives. And that's a -- being a good underlying and will continue to become a good underlying source of demand.

And if you were just to Google the expansion of palm oil production in these countries and expect that most of this surplus -- most of this demand oil production surplus will be exported and exported by sea, down below is routes in ton miles are growing at a much higher percentage than the underlying growth in straightforward petroleum products in the traditional routes.

Got it. And then just wanted to head back again on the buyback and dividend, I mean (inaudible) too much, but if I'm thinking about this right, I don't know if it's the way you think about it, but when you make a decision to do share buyback or increase the dividend, I imagine you look at the relative value of each one to each other before making that decision.

And if I'm thinking about ways that dividends become more valuable to shareholder as opposed to a share buyback, is it a situation where you've got a few things kind of going right in that the share price is up, therefore share buyback value kind of comes down on top of the fact that you've got maybe more charters locked in, therefore you have more visibility as opposed to I guess one big quarter of cash flows that you can use to buyback stock, I guess what I'm asking is are there signals that we should be looking for that maybe you're thinking about that would say dividend relative value to share buyback has now gone higher?

Well, I believe the first thing is to understand how we start to look at a dividend. So the dividend is -- your dividend calculation is one where you're not think to yourself, wow, what are we going to do this quarter or we can payout X. You're creating a dividend that is, let's say, a more normal dividend that is seen in most other types of companies where you view it as "now subject to the Board."

You can depend on it, you can rely on it, whether the quarter is a good quarter or a bad quarter. So therefore you are tailoring your dividend to what you're really countering the sustainability, et cetera, of the position. And it's not like the dividend right now, you go to the second point to the stock. I mean, the dividend is in relative terms really high.

I mean, 5.5% is okay. You're going to get 5.5% whether this quarter is bad or if this fourth quarter is great. So it's not as if the Company is paying a 1% or 2% dividend.

Then on the mathematics, and it comes to this delayed ratification part of it, is that a buyback of -- when you're buying stock, you ultimately in a -- obviously improve your long-term ability to pay higher dividends because you're taking down the share count of those dividends.

Yes, well, that's math to see if that makes sense. Last one hopefully.

If you just take it to the extremes, if the stock is $20, right now you're going to be less inclined to use capital to buy stock than if it's $1.

Right. Okay. And then just the last one, and hopefully you can answer it, just on six vessel options, just -- I guess outside of exercising them, are there any other ways you can monetize those options, not sure if a secondary market exists for something like that?

That's kind of a bit way after at the moment.

Okay, and that's fine. I wasn't sure if there was something obvious that you could do, but that works. Great, I appreciate the color. Thanks guys.

Magnus Fyhr, GMP Securities.

Most of my questions have been answered, but just curious on if you have any data on port congestions to see what your fleet is currently, looking at waiting times you currently experience in -- when you're in ports?

We do, but we will keep that as commercially proprietary at the moment.

Okay. Would you say if it's --?

And it's the same, we're not giving -- we don't like to give details on what we think on a particular markets, but we have general statements on, like we have on palm oils or what we think generally will happen when the ships come to 15 years old. But a lot of it is -- we do have the -- an advantage in having a big fleet, in having a big information database, especially when you include all the pool partners and that's partly -- we'd like to keep that to ourselves.

Okay. Maybe you can -- can you talk about maybe if any ports in particular that you see increased congestion and also is congestion time increased over the last six months?

Magnus, I can -- I could take that. You have two -- I'll say two obvious things, which is number one, your port time and your susceptibility to congestion increases as the size of the vessel decreases. So obviously the larger vessels are longer haul voyages, so the time they spend in the port is less. And the smaller vessels going short voyages obviously the proportion time in port is greater. That's point number one.

Point number two is, as Robert's referring to, there are times and circumstances in trading a volatile market where you'll actually target certain voyages and certain routes to either increase or decrease the amounts of congestion that your vessel faces. You do that to take advantage to either avoid or capture the benefit of high demurrage rates.

And so what Robert's referring to is on the margin there is a certain amount of strategy and tactical decision-making that goes into routing vessels or granting options to customers that exposes to congestion. Congestion sometimes, it's seen favorably and sometimes unfavorably.

Okay. Thank you.

Maybe the third point is that as we've said for several years, the underlying growth has a lot to do with emerging economies and the resilience in those emerging economies in those places have at least developed port infrastructure. So naturally you are -- for the marginal demand you are going to face higher congestion than trading between developed economies.

All right. Thank you.

Fotis Giannakoulis, Morgan Stanley.

Congratulations for the great quarter. Robert, probably either you or Cameron, I would like -- if you can give me your -- how do you view the trade in Asia? And there were some concerns about Chinese gasoline demand and the potential impact that that might have on runs in Asia. Can you tell us if you see any differences, any changes in the trade and how do you view overall the fact that refinery margins, they are relatively lower from what they were in the summer?

Yes, I think that's a good question. I mean, Asia -- despite the margins, et cetera, there, Asia is seen by us as a net-net positive. If you take China itself, we've really never traded product tankers into China, not alone out of China at the same time. And maybe we did a few [core sticks], but you're increasing your vegetable oil runs, you're increasing your other oil runs, and you're actually being able to take gasoline and some (inaudible) in and take diesel out. So China is sort of only a positive position.

The prices and the refineries, I think that's an interesting question, and that's yet to play out because on the negative side you've got all this sort of surplus in diesel out in Asia and you're not quite sure what is going on, but at the same you don't complain too much if you suddenly start taking -- if you're fixing LR2s from Asia to Africa for example.

So it -- we see it as net positive because of the demand side out there. We're a little bit too early to say yet for us what really happens with the ability for -- there is modern Asian refineries and China going into perhaps the -- as you're pointing out surplus of one product and less of one to work out exactly what happens related, for example, in the European refineries.

Okay. And one more question, I want to ask you about your growth. You kind of imply that this latest order was something like a one-off because of the changes in the regulation. Can you tell us what would be the new cost for vessels ordered after the end of the year relatively to what you bought?

And also if you can comment -- or given the fact that there are not so many new buildings, if you think -- how would you prioritize your goals in terms of growing your fleet further given the low order-book after the first half of next year versus share buybacks dividends?

I'll take the last question first. Maybe I'll take the last question first and then --

Sure.

-- you do the specific thing. But look, I don't think that -- as we tried to indicate earlier, I think a little bit of quiet time right now would be pretty good for STNG in all of its dynamics, whether it's maintain the balance sheet, allowing for the future positions. I mean, there's no -- we kind of -- this time we're running a little bit down the charter book.

These orders were opportunistic to the situation. We have turned down multiple offers by one company or another to buy their fleets or buy their companies. We're very happy in the position we're in. I think a little bit of last quarter, the quarter before was super hectic, lots of moving parts.

I think that the Company, as Emanuele started off with, let's focus a little bit on the ships and enough, at least the next few months, let's hope we enjoy the stronger season for a while.

And regarding the cost differential after the end of the year?

Fotis, for an MR it's probably, as a rough guide, between $1.5 million and $2 million. For conventional ship types, it's approximately 5% as a rough guide.

And Cameron, are there any real differences in the operational -- the vessel fuel consumption or operating expenses, or it's just pure cost that you have to pay?

No, it's a good question. There are differences of opinion here, but I'll posit that the fuel consumption in complying with Tier III actually goes up and the operating expenses will increase very marginally.

Okay, that's very helpful. Thank you very much and great quarter, guys.

Thank you.

Charles Rupinski, Seaport Global.

Thanks again for all the color on the industry. I just had a quick follow-up on some of the things you touched on, maybe it's pretty much related, but would you have any general statements or comments on your customers using tankers as a sort of floating inventory management and how that might have been affecting vessel speeds or routing versus previous seasons and sort of more an idea of how that might play into the winter? Thanks.

I can try that Charles. What you're seeing quite regularly and I'd say it's increased recently, is our customers constantly rerouting or playing options on our vessels in order to defer the sale or delivery of the underlying commodity. So for example, just two days ago one of our ships has been rerouted rather than going through the Suez Canal, around the Cape to play on that deferral option.

Now, because again the price of freight is so smaller percentage of the cost of the underlying commodity, it's a great outcome for us, a great outcome for our customer. I think we see that all the time, but I do agree that we've seen more of it recently. How much more I can't really quantify.

I do appreciate the color on that. Thank you.

Shawn Collins, Bank of America.

So you've already provided a good amount of information, so I'll try and keep it brief. A big picture question, I wanted to ask about the country of Iran and the easing of trade sanctions against the country in 2016. Do you expect Iran shipping lines to reenter the western markets and any color on how this might potentially play out in the industry? Thank you.

Look, Iran would be I think generally positive, right. I mean, it doesn't matter whether it's oil or products, it's exporting. They have a potential there of a new refinery and so potentially 300,000 barrels of exports of products. They would tighten up related type of vessels such as Aframax tankers or LR2s could move to [dirty] because they don't have the same sort of shore facilities to load the (inaudible) that as Saudi Arabia has. So it's positive, it's if and when it occurs.

Okay, I understand that, that's helpful. Second question, just thinking about whether the winter will be good or great, and hard to predict obviously, but this year we are expected to have a pretty severe El Nino weather impact. Do you expect that to have any impact on the industry or cause any disruptions or delays or anything of that sort?

As a general statement, absolutely. As you know, El Nino has also unpredictable, but quite pronounced effect on weather patterns which are generally very good for us. So if you're looking at it from our perspective, whatever you give back by say a warmer winter and less heating oil demand, you more than compensate for by disruptions and volatility and uncertainty because traders will want to capture pricing opportunities the bad -- uncertainty represents for (inaudible), a lot of freight in advance of those positions. So it's the trade, but I think it's a very positive trade for us.

understand. That's a helpful explanation, Cameron. I appreciate it. Well, great, thank you for the time and information.

Amit Mehrotra, Deutsche Bank.

Just one question on the demand side and it relates to the incremental demand surge that we've seen this year over and above the historical sort of compounded growth trends over the last 10 years or so, and just a question on how much of this do you think is related to the high refinery margins and increased refinery throughput, and how much of it is just sort of the secular trends that you were referring to earlier, Robert?

I'm just trying to see basically if the demand side of the equation has in part been sort of one-off perfect storm of good stuff kind of drivers or are there sustainable things that are happening over time that explains sort of the good stuff that we've seen on a year-date basis?

Sure. So I mean, on the positive [side], we know that the vegetable oils and the palm oils have nothing to do with that. You have got that ton-mile multiplier which is -- so much is coming from which is those refineries coming up in Asia. At the same time, you've -- yes, you've had delays or whatever, but you've also had an increase in general speed of the vessels which is added to supply, and the environment of lower prices, just lower price straight through to the consumer when we read whether it's United States, whether it's anywhere in the world, the consumer is using more oil products.

And if you look at other countries like West Africa where there's not much refinery capacity, but their populations are growing and their use is growing, you've had those imports there. So it's pretty fundamental.

Yes, I know it's hard to quantify and it's maybe impossible, but if you were to say -- if you were to take the demand side and say it's a 100, would you say 60%-70% is secular, 40%-30% is related to these spikes in refinery throughputs and margins, or would you say it's 50%-50%? I mean, anything that you could give us a sense in terms of trying to decide for what's sustainable and what maybe is related to what's happened in the macro backdrop?

I think what's sustainable is the growth of total product demand and vegetable oil demand and palm oil demand because the world is getting better and at these prices, the actual prices, it's being stimulated even further. So that's the most important thing here on the secular side of it.

And on the secular side, we are seeing those refineries come up that's requiring more long-distance shipping. And it's a pointless activity to try and get the rest of it. You can -- that's why we ourselves, we will open, Emanuele said in the beginning, it is really difficult to predict things on a quarter-to-quarter basis, but we are confident that there is the bits in place, whether it's refinery change or consumer demand or countries requiring more of the actual diversity and volume of trade getting bigger in the space, that we are going to have demand growth multi-years, and of course you are going to have little changes in between in trading habits or weather, et cetera.

Yes. Yes, we just started cooking with coconut oil in my house, I'm sure palm oil is coming soon, so that's positive secular growth right there. That's good, Robert. Thank you very much, appreciate it guys.

And that concludes today's question-and-answer session. At this time, I will turn the conference back over to today's speakers for any additional and closing remarks.

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