Scorpio Tankers (STNG) Q2 FY26 earnings call: guidance and Q&A

Are LR2s becoming more fungible between clean and dirty markets, and is Scorpio Tankers actively trading its LR2s in the dirty market, given the strong Q3 LR2 rates?

LR2s have always opportunistically dipped into the dirty market, and fungibility with Aframaxes has been very apparent for years. The decision is vessel-by-vessel. Currently, about 170 clean LR2s trade clean, while over 250 Aframaxes trade dirty. The strong Atlantic Basin Aframax market has drawn LR2s, but vessels quickly flip back to clean if spreads change. The LR2 and Aframax markets should be viewed as a closer unison unit.

“I think -- and I've mentioned this before on these calls that you need to today look at LR2s and Aframaxes as a much closer unison unit.”

asked by Omar Nokta · answered by Lars Nielsen

What is driving the recent significant increase in Atlantic Basin rates across all tanker segments, especially given the typically slower summer months?

The current July/August market is unprecedented. It's driven by strong refining margins, high U.S. Gulf utilization, and geopolitical factors like Russia's reduced exports, Bab-el-Mandeb/Hormuz issues, and low global stocks. Volatility for MRs has been profound, with TC14 rates resurging. The Aframax market is also strong in the Mediterranean, supported by dislocations and increased oil from South America and the U.S.

“I've never seen a July or August market like this, right? I mean, this is not what you would consider to be a normal kind of summer lull.”

asked by Omar Nokta · answered by Lars Nielsen

Have the unusual long-distance trading patterns seen during the height of the Middle East disruption become more enduring, and what are some examples of current trading patterns?

Initially, there were very uncommon voyages due to stress factors. After calibration, long-term routing is still in vogue, aided by an uptick in Chinese exports. New supply chains have been created due to reduced Russian exports and increased oil from South America/Africa, increasing ton-miles. There's been a recent uptick in Asia and trans-Pacific moves, indicating a general understanding of oil origins, though extended turmoil underpins the market.

“So we have seen over the last couple of weeks, another kind of uptick in Asia, which has been interesting. The transpac moves has increased substantially.”

asked by Christopher Robertson · answered by Lars Nielsen

Is the high percentage of LR2s trading dirty primarily due to geopolitical disruptions and ton-mile dynamics, and would unwinding geopolitical risk reverse this, or is it a more enduring trend?

The primary driver is time charter equivalent (TCE). When the TD25/Med market for Aframaxes ramps up significantly, vessels will opportunistically move dirty. If the spread flips, vessels quickly move back to clean. This 'flip-flopping' has become more common and efficient over the last couple of years. It's not considered transient but rather market-related, driven by spread differentials.

“I don't consider that to be transient, but to be a lot more market-related in terms of one way or the other.”

asked by Christopher Robertson · answered by Lars Nielsen

Given low inventories and the upcoming maintenance season, what is the timeframe for refineries to meet demand and begin restocking?

Crude shipped in June is arriving now, so runs are expected to pick up in Asia and Europe, boosting regional trading for MRs. While U.S. Gulf maintenance is expected in September, runs in the rest of the world are anticipated to increase simultaneously. This, combined with the fleet being out of normal positioning, creates a constructive dynamic. The refinery dislocation is structural and expected to continue, driving ton-mile growth.

“So there was a lot of crude that was shipped in June, and it takes about 30 days for that to get to Asia, 45 days to get to Europe, and that's arriving now. And so I think runs are going to pick up in those regions, and you'll get increased regional trading, which is going to be fantastic for the medium range ships.”

asked by Ken Hoexter · answered by James Doyle

How should investors think about potential dilution from the convertible bonds, especially if the stock trades significantly above the conversion price, and what is the preferred settlement method?

The company is pleased with the convertible bond transaction. A key feature is the option to settle in cash or shares, triggered at 130% over the conversion price. Management would be thrilled if the stock reaches those levels and will address the settlement method then. The maximum number of shares that can be issued upon conversion is 6 million. The low cash cost of the notes has significantly reduced cash breakevens.

“The trigger for that is 130% over the conversion price. So I think everybody here on the call would be thrilled if we get to those levels. And we will address that if it happens in terms of how we'll choose to settle it.”

asked by Stephanie Moore · answered by Chris Avella

Will extended high rates prolong the life of older MRs, or will the traditional rule of refiners not using vessels past a certain age prevail?

There's a hard stop at 20 years for vessels in the primary trade, even in strong markets. While the acceptable age for time charters has increased, it's very uncommon to see ships over 20 years old actively traded. The age profile of MRs and Aframaxes over the next few years will be interesting, but the 20-year limit seems to hold.

“I think it's fair to say that there is a hard stop at 20 these days for vessels. We've been seeing that even in strong markets.”

asked by Liam Burke · answered by Lars Nielsen

What is the rationale behind the VLCC joint venture, who are the partners, where are the vessels ordered, at what price, and what is the equity commitment?

The VLCC JV is a strategic investment, not financially meaningful compared to the balance sheet. The partner is the UBO of the largest private shipbuilder in China, with whom Scorpio Tankers has a long-standing relationship. The opportunity arose as the partner sought a shipping-side collaborator. The ships are delivering far in the future, after the Hanwha ships. The company believes in the sector and is gradually increasing exposure, following its DHT investment divestment.

“The partner is the UBO of the largest private shipbuilder in China. And we have a relationship with this gentleman for many years. And this opportunity came about where he was looking for a partner in the shipping side and not only potentially in order to operate the vessels once they get delivered.”

asked by Kristoffer Skeie · answered by Emanuele Lauro