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What are the benefits of Scorpio Tankers’ newbuilding program?

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Nov. 27 2019, Updated 5:20 p.m. ET

Scorpio’s newbuilding program

During the third quarter of 2014, Scorpio Tankers Inc. (STNG) made $451.2 million of installment payments on its newbuilding vessels. The company currently has 27 newbuilding vessel orders with Hyundai Mipo Dockyard (or HMD), SPP Shipbuilding, Hyundai Samho Heavy Industries (or HSHI), and Daewoo Shipbuilding & Marine Engineering Co., Ltd. (or DSME). This includes 14 MRs, five Handymax ice class 1-A tankers, and eight LR2s.

Scorpio Tankers recently took delivery of the following vessels:

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  • STI St. Charles, a newbuilding MR product tanker purchased in August 2014 and delivered from SPP in September 2014.
  • STI Sloane, an LR2 product tanker delivered from HSHI in November 2014. Upon delivery, this vessel began a voyage for 45 days at approximately $30,000 per day.
  • STI Broadway, an LR2 product tanker delivered from DSME in November 2014. Upon delivery, this vessel began a voyage for 45 days at approximately $30,000 per day.
  • STI Milwaukee, an MR product tanker delivered from HMD of South Korea in November 2014. Upon delivery, this vessel began a time charter for up to 120 days at approximately $18,000 per day. Also, it took delivery of two ice-class 1A Handymax tankers (STI Wembley and STI Battersea) from HMD. Including the previously announced deliveries of STI Mayfair and STI Yorkville, the company took delivery of four product tankers in October 2014.

Upon delivery, STI Yorkville and STI Mayfair each commenced a time charter for up to 120 days at approximately $18,000 per day. Also, STI Wembley and STI Battersea each commenced a time charter for up to 120 days at approximately $15,000 per day.

It is not important if Scorpio Tankers has taken delivery, but rather if the company has placed orders for newbuilds or secondhand vessels.

Benefits of the company’s newbuild program

Scorpio Tankers’ management believes that with the newbuilding program, the company over the summer finally turned the corner of having more ships on the water than vessels under construction at shipyards. This will help the company garner higher revenues and thus support the bottom line.

The company is still very confident in an improving product tanker market. It is experiencing the same with a considerable strengthening across all the product tanker asset classes. Industry analysts comment that the products tanker recovery is looking well timed for the arrival of Scorpio’s newbuilding flock.

With a positive product market outlook, companies like Navios Maritime Acquisition Corporation (NNA), Capital Product Partners L.P.(CPLP), Teekay Corporation (TK), and Tsakos Energy Navigation Ltd. (TNP) are likely to benefit.

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