Ardmore Shipping - Q2 2019
July 31, 2019
Transcript
Operator (participant)
Ladies and gentlemen, and welcome to Ardmore Shipping's Second Quarter 2019 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's website, ardmoreshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of this conference call will be accessible anytime during the next two weeks by dialing 1-877-344-7529 or 1-412-317-0088, and entering the passcode 10133853. At this time, I will turn the call over to Anthony Gurnee, Chief, Chief Executive Officer of Ardmore Shipping.
Anthony Gurnee (CEO)
Good morning, and welcome to Ardmore Shipping's Second Quarter 2019 Earnings Call. First, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements.
Paul Tivnan (CFO)
Thanks, Tony, and welcome, everyone. Before we begin our conference call, I would like to direct all participants to our website at ardmoreshipping.com, where you'll find a link to this morning's Second Quarter 2019 Earnings release and presentation. Tony and I will take about 15 minutes to go through 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, and additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the Second Quarter 2019 Earnings release, which is available on our website. And now I will turn the call back over to Tony.
Anthony Gurnee (CEO)
Thanks, Paul. So first, let me outline the format of today's call. To begin with, I'll discuss our second quarter results and then key market developments. After which, Paul will provide a summary of our performance, an update on recent tanker market activity, supply-demand fundamentals, and a detailed financial update. And then I'll conclude the presentation and open up the call for questions. So turning first to slide 4 on highlights for the quarter. We're reporting a net loss from continuing operations of $3.4 million or $0.10 per share, as compared to a net loss of $2.6 million or $0.08 per share for the first quarter, reflecting seasonally lower MR charter market conditions.
The MR charter market performed in line with expectations in the second quarter, with our tankers earning $14,900 per day, down from $15,850 in the first quarter, but up substantially from $11,500 per day a year ago. Rates on our chemical tankers improved to $12,850 per day, up from $12,150 in the first quarter, largely the result of voyage sequencing rather than a sign of strengthening markets. MR voyages for the third quarter-to-date are $14,000 per day, representing 40% of revenue days, reflecting what we believe is weakness from the final phase of the first half refinery turnaround. We expect activity to ramp up over the next month, with freight rates showing substantial improvement in September.
We've completed 6 of 7 scheduled dry dockings for the year, enabling us to take full advantage of IMO 2020 in the second half. Meanwhile, we're maintaining a strong liquidity position and balance sheet with quarter-end cash of $55 million and corporate leverage on a net debt basis of 52%. We sold the 2004-built Ardmore Seafarer for $9.1 million and delivered her to new owners in the second quarter. This restores our fleet average age to 5.9 years and completes our disposal program, consistent with our policy to not operate vessels over 15 years of age.
While we're on the topic of vessel disposals, as Paul will explain fully later on, in order to be technically compliant with U.S. GAAP guidelines regarding the presentation of gains and losses on vessel sales, we are removing the optional line item, income from operations, from our income statement, with everything else remaining as is. Regarding dividends, we're maintaining our policy of paying out 60% of earnings from continuing operations. Consistent with that policy, the company is not declaring a dividend for the quarter. And as a final point, a reminder of our earnings market, earnings upside in a rising market. With 25 modern, fuel-efficient ships and 100% spot market exposure, every $1,000 per day increase in charter rates translates into $0.27 in earnings per share. Turning next to slide 5 on key market developments.
As already mentioned, MR product tanker rates subsided in the second quarter as a consequence of seasonally lower demand and heightened global refinery maintenance ahead of the IMO 2020 fuel switch. IMO 2020 preps are unfolding as expected. Refinery upgrades and preparation should be nearing completion. Marine fuel providers are commencing cleanup of their logistics infrastructure and are preparing to stockpile compliant fuels in large quantities ahead of the switchover. Pricing of HSFO has risen in some regions, and availability is constrained as a consequence of reduced storage and barging capacity, as some has already been taken out of service for the conversion to VLSFO. Oil traders are stockpiling low sulfur blending components, albeit in relatively small quantities thus far. Refinery throughput should be set to increase over the next few months, with the advent of meaningful compliant fuel stockpiling in advance of the switchover.
As a consequence, we expect product tanker freight rates to begin to benefit in September, as we've stated in prior earnings calls. It's also worth noting that geopolitical events in the Middle East Gulf are resulting in some disruption of tanker activity, but at least thus far, are having no meaningful impact on rates. However, it could do so if the situation deteriorates.... We continue to monitor the situation closely, and place the highest priority on ensuring the safety of our seafarers and the security of our vessels. Turning to supply and demand, we believe the industry fundamentals we have now in place are very positive. Oil consumption growth is still relatively strong at 1.2 MMbpd for 2019, and anticipated to be 1.4 MMbpd in 2020.
Overall, product tanker supply growth, comprising MRs, LR1s, and LR2s, remains very modest, with net annual fleet growth expected to average around 2% for the foreseeable future. As a consequence, we believe that the elements are in place for a sustained upturn, with IMO 2020 as both the initial catalyst and potentially a multi-year accelerant to demand. On that note, I'll hand the call back over to Paul.
Paul Tivnan (CFO)
Thanks, Tony. Moving to Slide 11 for a summary of our quarterly performance. We reported adjusted EBITDA of $12.3 million for the second quarter. Loss from continuing operations was $3.4 million, or $0.10 per share for the second quarter, but the loss under GAAP was $9.9 million, or $0.30 per share. The GAAP loss includes $6.6 million, related to the loss on the sale of the Ardmore Seafarer. It is worth noting that the earnings for the first half were impacted by reduced revenue days as a result of scheduled dry dockings. As at the end of July, we've now completed 6 out of 7 dry dockings for the full year.
Ardmore's fleet average TCE in the second quarter was $14,375 per day, and $14,663 for the first half of the year. In the second quarter, the MRs averaged $14,892 per day, while the chemicals averaged $12,830 per day. Overall, the fleet continues to perform very well operationally, and the dry dockings are coming in under budget for the year. Turning to Slide 8 for an update on the tanker market activity. Looking at the second quarter, we experienced reduced cargo volumes as global refinery throughput dropped 700,000 bbl per day, year-on-year. The refinery throughput is illustrated on the chart on the upper right, and the drop in the second quarter represented the largest annual decline year-on-year in 10 years.
Charter rates East of Suez were relatively firm, with steady volumes of distillates moving from the Middle East and Asia into Europe, while in the Atlantic Basin, charter rates were more subdued due to lower cargo volumes on the back of refinery maintenance and lower trading volume. And finally, despite recent revisions to oil data, oil consumption growth remains robust, supporting a continued drop in refined product inventories. Looking ahead, the outlook remains very positive. Global refinery throughput is set to increase by 4 MMbpd, rising to a record throughput of 84.6 million bbl in August, resulting in a significant increase in volumes of refined products. Meanwhile, conditions are in place for increased trading activity.
We have continued low refined product inventories and regional imbalances, while geopolitical events in the Middle East Gulf are resulting in disruption to tanker activity and an uptick in oil price volatility. Finally, IMO 2020 is expected to drive increased trading activity as the transformation of the global bunker supply chains intensifies over the coming months. On Slide 9, we take a closer look at the underlying product tanker supply-demand fundamentals. On the demand side, oil consumption growth remains strong. The IEA are forecasting oil consumption growth of 1.2 MMbpd for 2019, increasing to 1.4 MMbpd in 2020. At the same time, as you will see on the chart on the upper right, average annual refinery capacity growth is 1.6 MMbpd over the next 8 years, with additions centered in export-oriented locations.
In addition to underlying demand, IMO 2020 is expected to result in an additional layer of product tanker ton-mile demand, which should be felt by the market in the coming months. Looking at the supply side, we've added a total product tanker supply chart, which includes LRs and MRs, as we think it's important to look at the broader product tanker market, in addition to the MRs and its competitive range. Overall, total product tanker net fleet growth remains exceptionally low. The order book to date stands at 172 ships, or 5.9% of the fleet, delivering in the third quarter of 2019 and the first quarter of 2023. We are forecasting 108 product tankers to deliver for the full year 2019, of which 80 have delivered year-to-date.
We expect annual scrapping to be in the range 35-40 product tankers on average for the next few years. Altogether, we expect total tanker fleet growth, net of scrapping, to be approximately 2.5% in 2019 and 1.9% in 2020. Supply growth for MRs on their own are in line with net fleet growth of 2.1% in 2019. The chemical tanker market is also positive. Seaborne trade in commodity chemicals is expected to increase by 6% per annum through 2023, while fleet growth, net of scrapping, is expected to be 1.8% in 2019 and less than 1% in 2020.
Overall, we believe the strong fundamentals will provide a solid foundation for a sustained upturn in the charter market for both products and chemical tankers. Moving to Slide 11, we take a quick look at the fleet days. Revenue days are estimated at 9,108 days in 2019. We completed two dry dockings and two ballast water system installations in the second quarter and in July, and we expect to have 15 dry docking days in the third quarter in respect of the Seamariner, which completed her docking this month. As Tony mentioned, six of the seven 2019 dry dockings are completed as of the end of July, so our fleet is well positioned to benefit from the increased activity expected in the second half of the year.
Turning to Slide 12, we take a more detailed look at our financials. Starting with overhead, total overhead costs were in line with expectations of $4.5 million for the quarter, comprising corporate expenses of $3.9 million and commercial and chartering expenses of $600,000. As mentioned before, in many companies, the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is the comparable overhead. Our full year corporate cash costs are expected to be $12.3 million, which works out at $490,000 per ship annually. For the third quarter of 2019, we expect total overhead, incorporating cash and commercial, to be $4.7 million, which includes both cash and non-cash items.
Depreciation and amortization was $9.1 million for the second quarter, and we expect depreciation and amortization for the third quarter to be in line. Interest and finance costs were $6.5 million for the second quarter, comprising cash interest of $6 million and amortized deferred finance fees of $500,000, and we expect interest and finance costs for the third quarter to be also in line. Moving to the bottom of the slide, operating costs for the quarter came in under budget at $14.9 million. Standard OpEx for the Eco Design MRs was $6,306 per day. Eco Mod MRs came in at $6,872 per day, while the chemical tankers came in at $6,143 per day.
Looking ahead, we expect operating expenses for the third quarter to be approximately $15.5 million. Finally, as you will look on the right-hand side, we wanted to highlight a change to the presentation of our income statement. US GAAP allows companies to opt to report a subtotal for income from operations, and where included gains or losses on the sale of vessels should be included in that subtotal. We hold the view that gains and losses from vessel sales are fundamentally different in nature from income derived from chartering and operation of vessels. Accordingly, commencing this quarter, we are removing the subtotal for income from operations, and we're also planning to restate the prior periods. We believe this is a better representation of the financial performance of the company, as opposed to including gains and losses in income from operations.
Turning to Slide 13, we take a look at charter rates across the fleet. Overall, the fleet average TCE for the first half was $14,663. Looking at the various ship types for the first half of the year, Eco Design MRs earned an average of $15,418 per day. Eco Mod MRs earned $14,916 per day, while the six chemical tankers had average rates of $12,529 for the first half. On the right-hand side, you can see a strong rebound in MR rates for the past two quarters, with rates expected to improve further over the next few months and into 2020.
Looking ahead to the third quarter, as Tony mentioned earlier, with 40% of the days booked to date, MRs are earning $14,000 per day, but the chemicals are earning $12,000 per day. On Slide 14, we have our summary balance sheet. At the end of June 2019, total assets were $780 million, while our corporate leverage on a net debt basis was 51.8%. Turning to Slide 15, we remain focused on maintaining a strong liquidity position, and we are continuing to pay down debt. We completed the sale of the Ardmore Seafarer in May, which released net cash proceeds of $5.5 million. Our cash balance at the end of June was $54.8 million, and we've got $17.8 million in net working capital.
All of our debt, including capital leases, is amortizing at $40 million per year. Finally, over 90% of our total debt, including leases, is LIBOR-based, and every 25 basis points reduction in interest rates equates to an extra $1 million in earnings or $0.03 per share annually. With that, I would like to turn the call back over to Tony.
Anthony Gurnee (CEO)
Thanks, Paul. To sum up then, while MR charter rates subsided in the second quarter with a seasonal decline in activity, we believe the outlook is very positive. Product tanker supply-demand fundamentals continue to be compelling, with ton mile demand growth anticipated to meaningfully outpace supply growth in the coming years. IMO 2020 is unfolding as expected. Most notably, refinery upgrades and preparations should be nearing completion. Marine fuel providers are commencing cleanup of their logistics infrastructure. Pricing of HSFO has risen, and availability is constrained as a result of reduced storage and barging capacity, and oil traders are stockpiling low sulfur blending components. We expect to see these preparations expand significantly in scope as we approach the switchover phase and to see a meaningful impact on product tanker demand commencing in September.
With our modern, fuel-efficient, cost-effective fleet and cost-effective structure and spot trading strategy, we believe Ardmore is well positioned to take advantage of the anticipated market recovery and to generate strong returns for our shareholders, where every 1,000 a day increase in charter rates translates into $0.27 EPS. And as a final point, with this quarter, we are commencing recording of our CO2 emissions. Beyond owning and operating a modern eco fleet, we've maintained a strict focus on fuel efficiency and environmental best practices throughout the company's history. We believe that a commitment to increase transparency by companies such as Ardmore will play an important role in encouraging positive and sensible legislation, legislative change, toward reducing greenhouse gas emissions from the shipping industry. And with that, we're happy to open up the call for questions.
Operator (participant)
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed or you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from John Chappell with Evercore. Please go ahead.
John Chappell (Senior Managing Director)
Thank you. Good afternoon, guys. Paul, I want to start with, start with you on the liquidity slide, slide 15. So close to $55 million of liquidity, annual debt repayment of just under $40 million. Obviously, or hopefully, there'll be some free cash flow generation as well as the market recovers. How do you think about the minimum liquidity that you want to keep on hand? I'm trying to figure out what your free firepower may be worth today based on the current position.
Paul Tivnan (CFO)
Great question, John. Yeah, no, we're obviously very in a very comfortable position with our liquidity. I think in terms of our cash, I think we've always tried to keep it around this level or, you know, arguably a little bit lower. I think we have potentially a little bit of excess cash to deploy, but not a huge amount. So I think we could afford to put a little bit out, but I think we're maybe a little bit less than we have, but I think we're fairly comfortable right now.
John Chappell (Senior Managing Director)
Okay. So then under the assumption that free cash flow starts to ramp and that builds and it gives you a little bit more flexibility, you also introduced in your press release, above and beyond the CO2 emissions, your in-house NAV, which is really interesting. So based on the NAV, a depreciated replacement value, you're trading at a 25% discount today. If we throw in the commercial management, commercial management estimator, 28% discount. So I understand there's liquidity concerns with the trading volume. It's no different today than it would be if you repurchased some shares. Have you thought about closing that gap, using the arbitrage, maybe with something like the proceeds from the Seafarer, to kind of narrow that valuation gap?
Anthony Gurnee (CEO)
Hey, John, it's Tony. Do you want Paul to answer that or me?
John Chappell (Senior Managing Director)
Uh, both.
Anthony Gurnee (CEO)
Okay. Well, look, I mean, you know, thanks for noticing that we put that table in, and the primary purpose of it was to just provide better transparency on the way the company is being valued. Because we had some concerns that not anybody in particular on this call, but others sometimes come up with NAV estimates that are just really out of line. And we think it's because they don't have enough information on the vessel specifications. And we decided to put in what we call DRV or Depreciated Replacement Value as a marker for value, because it's fairly uncontroversial. It's really just a straight line calculation off a new building estimate.
And it is something that does indicate, under current conditions, that there is some significant upside in the NAV just to reach back to that level, you know, forgetting about the fact that new building prices are likely to go up as well. But we thought that we'd put that in because then as people compare that to the valuations they have for our fleet, they can see where there are real disconnects and discrepancies against the DRV.
You know, in terms of share buybacks, that's really, you know, it's part of a broader question around capital allocation, which involves dividend policy, fleet reinvestment, debt prepayment, et cetera. You know, our position there is that we always, you know, it's something that's constantly on our mind. It's an ongoing dialogue with the board. You know, without being too specific, we do recognize the point you're making. We have done share repurchase in the past. The amounts that you can do are very limited, just by virtue of our trading volume and the restrictions under share repurchase programs. In the end, we didn't feel that it was particularly impactful because nobody remembers today. I don't think it, you know, it really created any meaningful value. So that—I think that's... Paul, anything to add?
Paul Tivnan (CFO)
No, I think that's well covered. And Tony's point of the DRV is absolutely right. We have seen quite a lot of discrepancies in terms of valuations for the different ships and felt it was important to, you know, to create some kind of relative analysis as well as provide a lot of detail on the ship so people can effectively make up their own mind, and that they have a pretty credible reference point to kind of assess the value themselves.
John Chappell (Senior Managing Director)
I would just say to tie those two questions and answers together, though. I mean, you always kind of put out your $1,000 a day increase in rates changes your EPS by X amount of cents, and it doesn't really take a lot to move the needle, given your shares outstanding, that $2 million allocated to reducing the float would move that $0.27 as it stands today, probably pretty meaningfully. But anyway, that's a, it's a bigger capital allocation topic, as you noted. Just one quick last one for me.
The OpEx guidance that you gave for Q3, Paul, $15.5 million versus the $14.9 million in the second quarter, not a huge number, but stands out a little bit because going up despite the fact that the fleet shrunk with the sale of the Seafarer and the fact that your dry dockings have been front-loaded. So is that, is that a timing around purchases or, or something else? And, and how should we think about kind of going forward, kind of closer to the 14, high 14s or, or the mid-15s?
Paul Tivnan (CFO)
Yeah, I mean, for the most part, John, that's... It came in under budget, less than we had expected in the second quarter, largely due to timing. And I think what we've-- our estimates for the third quarter is that it can kind of come back in line or make up the slight difference for the third quarter. So I think as you, you know, as you kind of think ahead for the fourth quarter, you know, it is obviously 25 ships now. The Eco designs are running at, you know, 6,200 per day. So I'd say around the $15 million mark is kind of a safe run rate, getting towards the end of the year.
John Chappell (Senior Managing Director)
All right. Thanks, Paul. Thanks, Tony.
Operator (participant)
The next question today comes from Randy Giveans with Jefferies. Please go ahead.
Randy Giveans (SVP)
Howdy, gentlemen. How's it going?
Anthony Gurnee (CEO)
Good, Randy.
Paul Tivnan (CFO)
Hey, Randy.
Randy Giveans (SVP)
Good. Two questions for me. So first, obviously, no scrubbers on orders. With that, do you plan on burning MGO next year, or will you switch to kind of the VLSFO blends despite some maybe compatibility concerns? And with that, when do you plan on cleaning out your tanks to switch from the HSFO to either MGO or VLSFO?
Anthony Gurnee (CEO)
Our intention is to burn VLSFO wherever we feel we can stem quantities that we're confident about. It'll very much be a market issue at that time. We won't be alone in that regard. At this point, we're quite confident that there'll be sufficient quantities of VLSFO available from reputable suppliers. So that we don't view as a major concern. But to the extent we do have concerns or we're trading into areas where it's not available, MGO would be the way to go, and that'll be priced into the voyage. Compatibility, I think, is something that we've thought through, and I think we're well prepared for.
I think the answer there is that you simply don't, except in very, very small percent quantities, load on top, into a tank that had a, you know, a prior, a fuel oil, cargo, you know, in, in that tank. So, as long as you use your segregations properly, we don't see that as a major issue. Regarding cleanup, that's something that's been underway for a while. We've got our own approach, that we won't go into detail about, but we're very happy with the progress, and we'll be ready to start loading compliant fuels, as early as September, if needed.
Randy Giveans (SVP)
Perfect. All right. And then, you know, following the sale of Seafarer, you have obviously no vessels built before 2006. As such, with the cash on hand, maybe some free cash flow here in the coming quarters, should we expect more fleet acquisitions than sales in the coming quarters?
Anthony Gurnee (CEO)
You know, again, we're not really in a position to ever tip our hand regarding our intentions on asset acquisitions or dispositions or commercial strategy. So, you know, what we did say is that we've now sold off the ships that we wanted to. We like the profile of the fleet. We think it's, you know, a really high quality, high-performing fleet. And, you know, that's matched with our desire over time to accrete value and enhance shareholder value through any means necessary.
Randy Giveans (SVP)
All right. Well, that's fair. Thank you so much.
Anthony Gurnee (CEO)
Yep.
Operator (participant)
The next question today comes from Ben Nolan with Stifel. Please go ahead.
Ben Nolan (Managing Director)
Hey, guys. How's it going, Tony and Paul? My question, I, Good. I guess I have a couple, and I'll start with sort of the specifics on the quarter. Your MRs did pretty well, certainly relative to, I think, the broader market. Was that just attributable to, you know, to the having good positioning at the right place, the right time, or, I don't know, how do you think through the performance in the quarter on the MRs?
Anthony Gurnee (CEO)
It bounces around quarter-to-quarter. We're certainly happy with this one, from what we've seen so far relative to the market. Probably has a bit to do with positioning, but also we're very focused on operational performance, and we've, you know, got a really high-quality fleet profile.
Ben Nolan (Managing Director)
Okay. And now switching over a little bit to just the, I don't know, IMO stuff. As we think through how the market is going to, from a physical perspective, utilize ships to move MGOs in particular, but, you know, all of the fuel that's going to be needed and a shift towards using product tankers, do you have any sense of what, where demand is going to fall in terms of? Is it going to be maybe a larger LR trade that then can pull up the MR market? Or are people that are looking to position themselves and build inventories, you know, maybe looking to do so with, you know, MR cargoes and maybe they are the primary beneficiaries. Any thoughts about that?
Anthony Gurnee (CEO)
Yeah, it'll probably be a mix of all that. And, you know, as you know, when charters are deciding what ship size to use, they have to take a whole bunch of factors into account, and that would be the same in this situation. So obviously, it depends on the capacity of the ports you're going to, but also relative freight rates and the costs associated with the total voyage in terms of canal costs and port costs and that kind of thing. So it's not always obvious that, well, what should be a long haul and therefore a larger stem doesn't always work out that way because of those details.
And in fact, you know, MR is very often engaged in very, very long-haul voyages, and LRs sometimes do fairly short hauls, so it's a bit of a mix. We think that it's likely to involve a flow of cargo generally from the east to the west, and that could be a mix of both. And of course, if LRs get to the west and need to then lighter or distribute cargoes, that's going to involve MRs as well. So it's hard to say, but we don't think it'll be any different from the way oil traders approach the rest of the business.
Ben Nolan (Managing Director)
Okay. And then lastly, as we're thinking through, and I think the market is thinking through, what is going to be the mix of MGO versus VLSFO? And it seems like they're at least here lately, in the last month or two months, and as a function of the forward curve flattening a bit, the market is getting a little more comfortable that there's not going to be a dramatic shortfall of, say, MGOs and that the VLSFOs, sorry, all these acronyms, are going to be a little bit more readily available. Assuming that that is how it plays out, how does that impact the product volumes?
Would you, would you move both of them on, say, a clean tanker or, you know, the VLSFOs maybe stick a little bit more with dirties, or, or how do you see that playing out?
Anthony Gurnee (CEO)
I think the way to answer that is maybe to start with the basics, which is that, if there's roughly 2 MMbpd of HSFO that's gonna get displaced and replaced with something, the VLSFO is, we believe, substantially more than 50% middle distillate or some intermediate feedstock component that's destined for middle distillate and mid grades coming out of refineries. All those components at the moment are being used, right? By somebody at somewhere.
And so if you're looking to replace, you know, roughly, you know, 1 million, 1 MMbpd plus, you know, with components or with MGO, that's got to either come from somewhere else, and some arguments have been made, it might be vacuum gas oil, which was otherwise on its way to producing in the refineries, producing naphtha or gasoline. There's a possibility there, although there are some issues with using that, we think, as a blending component indiscriminately. But just rambling a little bit. But the point is that, you know, we think this just kind of adds up to greater refinery throughput, just because of the simple math.
In terms of what type of ships it'll move on, the reality is that once it's blended, the VLSFO, we think, is a dirty cargo. However, if you've been carrying various grades of crude or HSFO in those ships before, you're gonna have to be pretty careful about cleaning because the tolerance below the spec is very, very tight. So we've seen some that are, for example, 0.485%, and then the tolerance, you know, the limit is 0.5%. So, you know, even cleaning up those ships is gonna be a bit tricky and perhaps a little bit time consuming. But we do believe that certainly the MGO and even the components going in will probably ship on various types of product tankers.
Ben Nolan (Managing Director)
Oh, that's—
Anthony Gurnee (CEO)
It seems like a lot of the blending is being done at the point of consumption, not at the point of production. It's not like it's being necessarily made, you know, in location A and then shipped to location B. They're bringing the components in and blending it close to the point of consumption.
Ben Nolan (Managing Director)
Interesting. Very helpful and very thorough. Appreciate that, Tony. That does it for me. Thanks a lot.
Operator (participant)
Again, if you have a question, please press Star, then one. Our next question today comes from Amit Mehrotra with Deutsche Bank. Please go ahead.
Chris Snyder (Equity Research Analyst)
Hey, this is Chris Snyder on for Amit. So I know you guys touched on the market outlook in your prepared remarks, but I was hoping to focus on recent developments. But so spot rates have taken a step lower in July, a time when at least we were expecting firming with refinery throughput starting to outpace normal seasonality. Can you maybe just provide some color on what specifically pushed rates lower in July, and have you been surprised by the move?
Anthony Gurnee (CEO)
Yeah, I think we were a little bit disappointed. We knew it would be a slower, and we just think it's an extension of the process that we went through in the second half, largely due to refinery turnarounds, and just lower activity at the moment. But we don't think it's of great concern.
Chris Snyder (Equity Research Analyst)
Okay, fair enough. And then, you know, time charter rates seem like they continue to firm, you know, at pretty attractive levels right now. Have you guys given any consideration to maybe taking some risk off the table and locking into some term rates?
Anthony Gurnee (CEO)
Not, not at current levels.
Chris Snyder (Equity Research Analyst)
Okay, and then kind of going back to the fleet renewal conversation from before. So obviously you guys have been selling older vessels, you know, in line with company strategy, but at the same time, you're of course pretty bullish on the outlook. Can you talk about the ability to add leverage to the pending upcycle? You know, it feels like it's gonna be pretty hard maybe to find willing sellers right now with sentiment pretty bullish. Would you think about maybe chartering in some vessels? Is there anything you guys think about in trying to maybe add some juice to the IMO catalyst?
Anthony Gurnee (CEO)
Well, maybe we can just start by explaining that we think we have a lot of juice already. You know, we're 100% spot. We're significantly leveraged to the upside. In 2015, our ships are in $25,000 a day, for a period of time, in the strong market. We get back to those levels, you're talking probably $2.50-$3 per share in earnings. And given where the stock price is today, we think that's, you know, that's a significant amount of upside. You know, the same thing with our NAV per share. Every $1 million a day increase, you know, per ship is $0.80 in NAV.
So I'm not really sure we have to add a lot more to what we've already done. And, you know, we're always looking for ways, you know, if we see good bets that we can, we can take, we're always looking for ways to, you know, further enhance the earnings upside, and the earnings power. But I think we're not—we don't set it as a very high priority because we think we're really well positioned already.
Chris Snyder (Equity Research Analyst)
Okay. Then kind of staying on that, you know, potential acquisition front, with the chemical tankers. You guys provided some, you know, information in the slides. I think you said demand's growing 6% per annum to 2023, with fleet growth running below 2% and kind of declining. You know, clearly, that's quite attractive, but in this segment, rates never really seem to move much, at least, you know, of late. Is this just more a reflection of the MR market kind of weighing on the chemical market? And how do you think about adding chemical tankers, just kind of given that, you know, pretty attractive outlook?
Anthony Gurnee (CEO)
Yeah, I think the analysis was 6% over those few years. And then with ton-mile expansion and some other aspects, that kind of translates into, we think, maybe 4% per year. And which is very similar to the MR sector, and that's not necessarily surprising, because as time goes on, there's more and more overlap between the two sectors. The MRs do a lot of business that chemical tankers would prefer we stay away from. And the chemical tankers actually move a lot of CPP, especially the simpler ones, like the ones we own, are doing these kind of flexi trades and needing, you know, kind of shorter voyage activity. So, you know, when...
For our ships, when the chemical market is weak, they can tend to do up to 50% in CPP, and when it strengthens, that can go up to 75%. So that overlap, I think, really joins the two sectors, at least when it comes to the commodity chemical world, fairly tightly, and we think they both share the same upside potential.
Chris Snyder (Equity Research Analyst)
Okay. Thank you for the time. That does it for me. Appreciate it.
Anthony Gurnee (CEO)
Thanks, Chris.
Operator (participant)
The next question today comes from Greg Lewis with BTIG. Please go ahead.
Greg Lewis (Managing Director)
Thank you and good morning. Tony, I just had a quick question for you.
Anthony Gurnee (CEO)
Hey, Greg.
Greg Lewis (Managing Director)
In your prepared remarks, you kind of talked about firming new building prices, and just kind of any kind of color around that. Like, is that something you're seeing or just sort of, you know, how you're thinking about that?
Anthony Gurnee (CEO)
That must have been another call.
Greg Lewis (Managing Director)
Okay, so then I-
Anthony Gurnee (CEO)
Talk about new building prices.
Greg Lewis (Managing Director)
Okay, 'cause I thought you said in, like, in your DRV, you were kind of talking about, you know, that's based on new building prices, and you kind of have the sense that they're firming? No.
Anthony Gurnee (CEO)
Oh, okay. Yeah.
Greg Lewis (Managing Director)
Um-
Anthony Gurnee (CEO)
Those, those were unprepared remarks. They were-
Greg Lewis (Managing Director)
Oh.
Anthony Gurnee (CEO)
That was John's question in the beginning. But anyway, that's fine. That's good. Yeah, look, I mean, you know, we're at an interesting point in the new building cycle as well, because the order book is really, you know, quite low. Meanwhile, the cost inputs, you know, input costs for shipbuilding have been going up, and shipyards, at least, in the recent couple of years, have seemed to have found real discipline around pricing. And so as a consequence, you know, there doesn't appear to be a lot of appetite to take a lot of orders in at current pricing levels, which are probably, like, $36 million-$37 million for like a Hyundai Mipo MR.
We think that when the market begins to move, there's significant upside in new building prices. You know, just by way of background, in the last strong market, new building prices for MRs went up to, again, at a lower cost base, went up to over $50 million. And in fact, at that point, prompt delivery ships were selling for around $55 million. So, you know, we're not- I'm not laying that out as a suggestion that that's where things are going in the near term here. But we do believe that there's, you know, some meaningful upside.
Then the other aspect I'll maybe just mention in that regard is that it's not simply new building prices, but as you get to the older ships, they're trading, and I think this is what John was pointing out, they're trading at a significant discount to that depreciated replacement value line. So, you know, there's a lot of catch up that can happen there as well. So between that and new building prices rising, you could see very significant accretion to NAV in stocks like Ardmore.
Greg Lewis (Managing Director)
Okay, guys. Hey, thank you very much.
Anthony Gurnee (CEO)
Sure.
Operator (participant)
As there are no further questions, this concludes our question and answer session. The conference is now also concluded. Thank you for attending today's presentation. You may now disconnect.