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Scorpio Tankers Inc  (NYSE:STNG)
Q4 2018 Earnings Conference Call
Feb. 14, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to Scorpio Tankers Incorporated Fourth Quarter 2018 Conference Call. I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.

Brian Lee -- Chief Financial Officer

Thank you, and thank everyone for joining us today. Welcome to the Scorpio Tankers' fourth quarter earnings conference call. On the call with me are Emanuele Lauro, our Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; and James Doyle, Senior Financial Analyst.

Earlier today, we issued our fourth quarter earnings press release, which is available on our website. The information discussed on this call is based on the information as of today, February 14, 2019, 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 risks and uncertainties, you should review the forward-looking statement disclosure in our earnings press release that we issued today as well as in Scorpio Tankers' SEC filings, which are available at scorpiotankers.com and sec.gov.

Call participants are advised that the audio of this conference call is being played live on the internet and is also being recorded for playback purposes. An archive of the webcast will remain available on the Investor Relations page of our website for approximately 14 days.

On the call, there will be a short presentation with slides. The slides are available on scorpiotankers.com on the Investor Relations page under Reports and Presentations. If you have any specific modeling questions, you can contact me later and discuss offline.

Now, I'd like to introduce Emanuele Lauro.

Emanuele Lauro -- Chief Executive Officer

Thank you, Brian. Good morning or afternoon, everybody. Thanks for being with us today.

I am pleased to report the strong performance of Scorpio Tankers in the fourth quarter. This trend has persisted into the first quarter of 2019 and show signs of enduring through the year. In short, the positive evolution of the product tanker market is now fully under way, and our conviction has further strengthened from the picture we were able to share with you during our Investor Day in mid-December in New York.

We start 2019, already engaged with a significant and important drydocking and scrubber retrofit program. This will ensure our fleet remains the best equipped. We firmly believe in the sustained commercial advantage from our status, as the most modern and efficient fleet on the water. This investment is well timed for the significant secular demand that we expect from the implementation of the regulations of IMO 2020. Furthermore, there is increasing debts in our commercial relationships, which continues to deliver market-leading results on the time charter equivalent front.

New vessel supply remains benign and increasing demand has created a higher price environment across all our vessel categories. This has manifested itself in higher spot rates, time charter rates and vessel values as well.

We remain very respectful of the macroeconomic and geopolitical uncertainty, which has created so much equity market volatility over the last months. Despite these, our underlining business performance and visibility has continued to improve day-to-day. We believe the best is yet to come.

With this, I would like to turn the call to Robert Bugbee.

Robert Bugbee -- President, Director

Thanks, Emanuele. If everyone could turn to Page 4 of this short presentation please. It is related to some of the highlights. I mean, we have really significant operating leverage. We have the world's largest and youngest product fleet, and also the vast majority of that fleet is employed on the spot market, and we intend to keep it that way because as Emanuele pointed out, we believe that the market will -- is going to continue to strengthen.

We're also really well placed for this increase in fuel expenses environment that we're likely to face going forward. We already have, by definition, a very fuel efficient fleet, it being the most modern there is in the world of product tankers. And as we'd like to point out, we're getting it scrubber ready as well.

And we have great liquidity, which will allow us flexibility to do things as cash flow continues to improve. And we'll be able to among other things lower our cost of debt along the way.

And in summary, we just simply think that -- believe that Scorpio Tankers is the best investment expression there is like in any company, refiners or anything of this value related to the IMO 2020 theme. And on top of that, the actual recovery of the product market cycle itself.

We go to Slide 5. It is really kind of at the moment (ph) my personal favorite slide. And the reason for it is it shows that we've already got this market improving its turn from the bottom cycle and it's starting to move upwards. And you've got a pretty big difference between the first quarter of this year and the first quarter of last year. And that's not IMO 2020 affected. This has got nothing to do with IMO 2020. That's going to come later in the year and from about the second quarter. This is simply the supply and demand balance sheet to the product market itself, showing the growth in demand in general and the supply that Emanuele was talking about where the growth is fairly benign.

Now I would like to hand it over to James now to go through the Scrubber slide.

James Doyle -- Senior Financial Analyst

Thanks, Robert. On this slide, we've shown the consumption figures provided are the actual average consumption figures of our vessels in 2018. This only includes consumption outside of emission control areas. So the scrubber does not operate during port activities, loading and discharging. And also to be conservative, we assume that every load and discharge port is in an ECA area. Thus the scrubber does not operate in the 200 nautical miles when entering and leaving the port.

Today, the average spread of the MGO-HSFO forward curve in Rotterdam from 2020 to 2022 is $289 per metric ton. However, using a $200 spread, this would equate to the following daily TCE savings on an MR of roughly $2,500, on an LR1 roughly $2,800 and on an LR2 roughly $3,300. Every $100 change in the spread equates to daily savings of roughly $1,200 on the MRs, $1,400 on the LR1s, and $1,700 on the LR2s.

With that, I'll turn it back to Robert.

Robert Bugbee -- President, Director

Thanks. We don't have anything else. So then just to -- just would like to give apologies for -- Lars Dencker won't be on the call with us today. But he will be -- he is our Head of Trading, he will be joining us on our non-deal roadshows to Boston and New York next week. Thanks.

Just on that, we'd like to open it up to questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from Amit Mehrotra with Deutsche Bank. Your line is now open.

Amit Mehrotra -- Deutsche Bank -- Analyst

Thanks, operator. Hi, guys. Thanks for taking my question. So, you obviously have a lot of cash on hand over $600 million. I think that maybe I joined a little bit late, so I'm not sure if you covered this, but I think it may be understated just given the surge in bookings in recent weeks. And I guess when the funds -- the pool funds are distributed, can you just talk about maybe how much additional inflows you expect over the next month or so, looks like that may be a better way of looking at it versus the cash costs you've outlined in the release?

Brian Lee -- Chief Financial Officer

Hi, Amit. This is Brian. You're exactly right. Well it takes a while for a voyage to be completed and from cash flows to come through. For example, if you look at these accounts receivable balance between September 30th and December 31th, there is about -- there is over $12 million, that number went up. So the money came in, but there is still $12 million more. And as you said, a lot of the wages that have the highest rates were post that. That's why we had a very good so far Q1 results. So it's going to take awhile, money comes in, but it's definitely a positive, things are looking better.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. And then, you're obviously retiring debt a little bit early, which saves some I guess interest cost, insurance costs, I mean are you guys, Brian, are you guys basically happy now in terms of where the capital structure and liquidity is. I mean you've obviously done a lot of liquidity and capital structure gymnastics to speak over the last year. Are you guys happy with where it is today or is there something more we can expect that may impact the breakeven positions over the next few months? And also just related to that Brian any help on when you do kind of address some of these cash calls now with all the liquidity you have where the breakevens can go over the course of the year?

Brian Lee -- Chief Financial Officer

Okay. So breakeven on the fleet basis is about $17,000 a day. It will go down with the interest, but it's -- it will take some time. So in addition to the $57.5 million, the baby bonds are retiring. On an annualized basis, we have amortization payments of about $220 million that's obviously significant, and we also have the convertible due on July 1 of $145 million. So we have some additional work to do, paying down the debt. And I think those are all positives and I think that our -- one of our goals is to reduce our leverage going forward. And as you said, very good point we will bring down the breakevens as the interest comes down.

Emanuele Lauro -- Chief Executive Officer

And as we go through the next obviously 15 months, 18 months, you have other opportunities on other baby bonds and then ultimately, and then along that way you would also have opportunities to -- as your balance sheet is -- then would really start to improve from a lending point of view, you would have opportunities to do refinancing in the more traditional way and then perhaps substitute certain things with normal commercial bank at debt at less cost --

Amit Mehrotra -- Deutsche Bank -- Analyst

And you know if the market -- Yes. Yes, that makes sense. I mean if the market continues, how we and you and that seems like everybody kind of expect it to progress over the course of the year. Can you just talk about, I guess the balance sheet, arguably, will continue to be deleveraged? Is there -- will you just allow that to be deleverage continuously or are you kind of targeting the 60% -- 50%, 60% leverage target, any excess cash flow over and above that will be used to grow the fleet further or maybe return more cash to shareholders? How do you guys think about that philosophically?

Robert Bugbee -- President, Director

I don't think that we -- we really have -- we have the world's biggest fleet already. We have a lot of operating leverage. I mean every $1,000 a day increases approximately $45 million improvement in cash flow. And as you de-gear the fleet to, then obviously your general cash flow gets higher. I don't think on a strong market, this company is lacking in firepower or opportunity to generate cash flow. I think the first thing to -- but I do think that we shouldn't be returning every dollar there is to shareholders right now. We should be mindful that the company has a high debt profile. So we should take that debt down too. And as we discussed before that improves the cash flow.

We haven't at this point yet got around to determining actual targets to whether it's 50%, 60% or 40%. I think that we will watch general interest curves and financing, and just take that as it is. And I think that would be a discussion, perhaps, hopefully we could have in six months, nine months, 12 months time with this specific target.

Amit Mehrotra -- Deutsche Bank -- Analyst

And then just last question for me, if you are in that advantageous position where you kind of have the options with the cash flow. Would you -- is there a likelihood that you may buy back the stock that is held by Scorpio Bulkers. Is that a potential use of cash flow, if you have the excess liquidity down the road?

Robert Bugbee -- President, Director

Probably, would be fairly inefficient in the sense that Scorpio Tankers -- Bulkers would probably demand a premium for being the largest shareholder in Scorpio Tankers. I mean there is -- we know Scorpio Bulkers fairly well. We know their Board and their Management pretty well. And we as insiders own 27%, 28% of that company, and we are highly confident of that investment. That is an investment. We think that the price of Scorpio Tankers, the product market itself will go up and go up significantly. And we have read various things that maybe Scorpio Bulkers would sell the stock. We've even had banks ring us up and ask us if we do that. But Scorpio Bulkers thinks that Scorpio Tankers has a tremendous way to run in terms of its stock price and its investment. And is not going to be a seller at market.

And so one of the great things of Scorpio Tankers is, it is a liquid stock. So Scorpio Tankers is thus far been able to -- obviously we've been blacked out since December 31, but thus far we would expect the Scorpio Tankers should wish to acquire stock and do so most efficiently from the actual market -- the actual daily market itself.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. All right. That's all from me guys. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Randy Giveans with Jefferies. Your line is now open.

Randy Giveans -- Jefferies -- Analyst

Howdy, gentlemen. How are you?

Emanuele Lauro -- Chief Executive Officer

Good. Thanks.

Randy Giveans -- Jefferies -- Analyst

All right. A few quick questions. So on Slide 5, as you mentioned quite attractive here at these levels. Just to put this into context, after all the refinancings, the sale leasebacks, what have you, what are your kind of current cash breakeven rates for the LRs and MRs?

Brian Lee -- Chief Financial Officer

Hey, Randy. As we said before the overall fleet which I think is easier to deal with, but is around 17. But if you want to look at it on a segment basis for the MRs, you're getting into about 16 -- 16,000 and then for LRs you are -- because of the sale leasebacks that we inherited from Navig8 you are looking at just under 18 -- sorry, just under 19.

Randy Giveans -- Jefferies -- Analyst

Okay. Perfect. And then turning the page to Slide 6, great detail here. Is the Scrubber strategy driven more by economics, because of the likely rate premiums as you kind of lay out here or more of an operational decisions because of maybe the fuel compatibility concerns with some blends. Specifically, do you think there will be more HSFO or VLSFO available in ports next year? And with that, have you been able to purchase in advance some of your HSFO fuel needs for next year?

Cameron Mackey -- Chief Operating Officer

Hi, Randy, it's Cam. The answer to your question is, yes. In other words, both played a part. As we review what we've said on previous calls, we spent a great deal of time looking at various risks to adopting scrubbers, which include the technology and CapEx required, the regulatory and political risk, and also the economic risk and what our future projections are for the spread between gas oil or compliant distillates and HSFO.

So, in there, of course, the economic returns played a big role, but not without careful understanding of the risks. So to the latter part of your question, yes, we're in the process of contracting and securing the volumes for the next 18 months to 24 months of HSFO and gas oil in strategic bunkering ports for us, which not only include primary bunkering hubs, but also secondary and tertiary bunkering ports. As an aside, we don't think that enough attention has been given to the surplus of heavy fuel oil that the market would have to absorb post 2020. So apart from, say, the supply chain, we do believe globally HSFO will be widely available.

Randy Giveans -- Jefferies -- Analyst

Okay, great. And then one quick question. So you have about 1,300 offhire days in the back half of 2019, another 1,000 offhire in 2020. Do you expect the charter-in some vessels to offset these days or just kind of use your current fleet as it?

Emanuele Lauro -- Chief Executive Officer

It's a great question. I don't think we will charter-in vessels on it, to say, on that kind of short-term trading mentality, our charters-in historically have been more strategic in nature based on our view of the market. To the extent, vessels are available to charter that don't reflect our forward view of the strength of the coming one to two to three years, we'll be there to charter-in vessels opportunistically.

Robert Bugbee -- President, Director

I'd also add to that something to that Randy is that, it sounds dramatic when you say a 1,000 offhire days in this -- in this period, a 1,000 offhire days in that period. But like it is only 5% or less than 5% of the total fleet, we have 20,000 onhire days.

Randy Giveans -- Jefferies -- Analyst

Sure, sure.

Robert Bugbee -- President, Director

Actually 40,000 onhire days. So...

Emanuele Lauro -- Chief Executive Officer

Yes. The level -- the degree is not huge, just a question of...

Randy Giveans -- Jefferies -- Analyst

Thank you so much.

Robert Bugbee -- President, Director

The offhire days is pretty irrelevant, if you think about it.

Randy Giveans -- Jefferies -- Analyst

That's fair. All right. Thanks, again.

Robert Bugbee -- President, Director

Thanks.

Operator

Thank you. And our next question comes from Greg Lewis with BTIG. Your line is now open.

Greg Lewis -- BTIG -- Analyst

Yes, hi. Thank you and good morning. I just wanted to touch a little bit on the scrubber strategy. I mean clearly you guys are committed to, you've laid it out in detail. But I guess what I'm wondering is just given that, there is still some uncertainty -- there is -- it's a stall, fluid situation. How much flexibility is there with you -- with the company and what is scheduled at shipyards and capital outlays? How much flexibility is there? Should there potentially be a potential reason to change that strategy?

Robert Bugbee -- President, Director

Thanks, Greg. Well, first of all, we think that the market is overplaying or quite skewed in its interpretation of various political and social voices on the risks of scrubbers. So first comment to make is, we don't see a great deal of risk in slippage in the implementation date of IMO 2020, and there's a lot of color we can add to that comment. However, be that as it may, should there be some unforeseen change to the regulation we still hold, some significant amount of optionality in our program. I can't go into details, but obviously as we've done in the past, we will adjust.

Greg Lewis -- BTIG -- Analyst

Yes, OK. Great. And then just one question. It looks like there was a nice -- it looks like there has been a nice surge in MR rates in the Atlantic Basin, really just this week. Could you just talk a little bit about that and maybe what's driving that?

Robert Bugbee -- President, Director

I think that -- I don't -- I think we wanted to stay off the week-to-week bet and the month-to-month bet at the moment. And we've sort of said on the Investors' call, as you see our market tightening, which is what we're doing, and it's a multi-regional, multi-size. So what we've seen is literally one week, the LR2s do great in East and the next week Handys in Northern Europe doing great. Now the next week, MRs doing -- is being the best in the U.S. Gulf. But generally what we've seen as we've gone through, is that on a year-on-year comp basis, all of these areas and all of these markets have improved significantly.

And to go back to the statement we've made on the Investor Day, at each point we are aware that, yes, you can have refinery turnarounds. We expect the markets to go up and down in regions and sizes as we just move remorsefully (ph) toward the third, fourth quarter of this year. But at each point, as we've said back in November, the risk is to the upside is what we're finding. We continue to underestimate. Every time we think the market's going to slide, like the reason we're hesitant here is two or three weeks ago, most of the commentators were expecting that the MR market in the U.S. Gulf would actually go downwards and continue to go downwards. And it's gone the other way, it has gone upwards.

So we just want to back off this week to week thing. It is really not going to matter. In nine months, 12 months, I mean the company at the moment is focusing on -- the commercial guys are focusing on utilization, better choices in the trade, better choices in positioning, getting ready for the changing world coming in the next six months or so, increasing customer contact and et cetera that way, and the rest of the company is just trying to control what it can control in the operating terms, and it will come. So we prefer not to comment anymore on week to week questions.

Greg Lewis -- BTIG -- Analyst

Okay. All right, guys. Thanks for the time.

Operator

Thank you. And our next question comes from Jon Chappell with Evercore. Your line is now open.

Jon Chappell -- Evercore -- Analyst

Thanks. Good morning. Good afternoon. Robert you mentioned that guys kind of operationally trying to position, and it's unfortunate that Lars isn't on the call. But when you think about the timing of starting to see the impact, mostly on the demand side from January 1, 2020 regulations, when do you think that really starts to hit the market? Is that kind of soon out of refinery maintenance in August, or is that been so accelerated in the first half of the year that you could potentially see it even sooner? And then a third part to that question, are you expecting that to hit the bigger assets, LR2s before the MRs or is it going to be just kind of product tanker industrywide?

Robert Bugbee -- President, Director

First of all, Cameron goes on this, this is like literally potluck because -- do the refineries come up in Asia, first, the new ones come, do they prime those first, does China continue to export first, which is all related to these LR2s, do we have an extended cold period in Northern Europe, which will keep those ice class Handys ripping forward.

I mean, I think, in the results now, most people should be fairly surprised that the Handy is running at $18,000, $19,000 a day or so. And at to -- very complicated question, as to exactly what the refineries will do with timing or how they will start to switch to produce more low sulfur, that's super hard to predict. What is easier to predict is the actual offhire time that people have in the fleet of ships, crude oil tankers, product tankers when they are removing them from the market for scrubber installations. The curve itself, the decision-making, I mean, as oil prices firm the premium to heavy fuel, the spread has increased quite dramatically, and all these things will feed into the customers. So, I don't know, Cameron, you've got any better...

Cameron Mackey -- Chief Operating Officer

The only thing I would add to that Jon is, it's a bit early for distillate production to be reading through to the end of the year in IMO 2020. But what we are, say, pleasantly surprised by, and you can get this just by reading through the results of some of the independent refiners in the oil majors, is the healthy distillate spreads that they're enjoying and the utilization that comes with that. So our big ships, our small ships are all moving a lot of distillate around right now. And through the year, particularly when we get into the third quarter, after the summer, we expect that to accelerate because that's the natural time when they will be worried about January 1 to March 30 next year respectively.

I mean, again, it's like a lot of people, I guess, in the last weeks have been hurt one way or other in trying to gain what the actual spot market has been doing or what the first quarter is doing in terms of products, by looking at the stock prices. I see various things about people, well we'll better hold off to do things until the end of the second quarter because there's going to be a big refinery turnaround.

All of these are -- if we go back to November, it was well better not buy now because the market's bound to go down in January. These short-term things -- we just don't want to be part of this anymore. I mean, we are running it for the long-term, we've invested for the long-term, whether it's with our shareholders' money or our own money in this, and it will -- one thing that we are sure of is the cycle has turned. The next thing we are sure of is that the demand already increasing demand against the flat supply line will be further stimulated by IMO 2020 which is coming soon. And that's pretty much all we know. The rest of it day to day who knows.

Jon Chappell -- Evercore -- Analyst

All right. Balancing that short-term and that long-term, it's been reported in the trade press from sources that you may be chartering some ships with some of the major traders. Now the sources are typically pretty well placed. But, let me ask a couple of questions on that. First of all, our traders coming to you already for the scrubber fitted ships looking for charters six months out. And if so, how are you structuring -- how you're thinking about structuring? Any profit share or payment terms around that? And then the second part of that which kind of goes to the first part as well is how much roughly speaking would you be looked at kind of lock away to kind of absorb the arbitrage economics of the scrubber versus kind of just remaining -- keeping all of your ships in the spot market based on the cyclical turn that you already talked about?

Robert Bugbee -- President, Director

We are very confident of the improvement in the market, so we want to charter out as absolutely little as we possibly can. But the company has in the past and we'll continue to do in the future take one or two vessels to the extent that they could be helpful to form for example strategic partnerships or beneficial to the actual trading efficiency and flow of trading information to the broader fleet as opposed to doing it for an economic decision. (inaudible) yes.

Jon Chappell -- Evercore -- Analyst

Yes. That makes sense. Thanks, Robert. Thanks, again.

Operator

Thank you. And our next question comes from Ben Nolan with Stifel. Your line is now open.

Ben Nolan -- Stifel -- Analyst

Yes, thanks. So obviously you guys are going to be buying in the one baby bond. Just curious if as you look out to what's left of the convert little bit later in the year if you -- if the plan is to take a similar approach there and just retire that as part of the debt repayment process that you outlined a little bit earlier.

Robert Bugbee -- President, Director

I mean that -- we looked at that all the time. It's like -- it's when you go to buy something, suddenly the seller wants more money, and it's going to come to us anyway in June.

Ben Nolan -- Stifel -- Analyst

So, whether it's now or later?

Robert Bugbee -- President, Director

So the wonderful thing was the baby bond. Even though it's trading above par at the moment, we have the call option at par. We can force the seller to sell to us. With the 19 -- or the June convertible, it's simply -- look, if someone rang up and said, here is $50 million, $40 million, $20 million and made it worth on mathematical while, we'll openly say, we are there to buy it.

Ben Nolan -- Stifel -- Analyst

Got you.

Robert Bugbee -- President, Director

But so far whenever we put a bid into the market suddenly -- what was one number, suddenly moves to another number. So we've kind of given up.

Ben Nolan -- Stifel -- Analyst

Yes.

Robert Bugbee -- President, Director

So all potential sellers out there please ring up and make your offers.

Ben Nolan -- Stifel -- Analyst

Yes. There is convert holders. They are sneaky. But one way or the other. Sorry, go ahead.

Robert Bugbee -- President, Director

And they have a company, that's pretty clear that we are going to pay them anyway in June.

Ben Nolan -- Stifel -- Analyst

Right, right. And that I guess is my point, is at this point you're not looking to refinance that now and anyway it's what's left of it, the intent is to simply take it off the market, whether it's now or later. Is that the idea?

Robert Bugbee -- President, Director

Right. Yes, absolutely.

Ben Nolan -- Stifel -- Analyst

Okay. Yes. So -- and then I wanted to touch on something Robert that you mentioned on the ice class Handys which at least from our side it's a little harder to get visibility in. And could you maybe -- obviously you're doing pretty well on those at the moment. Or is there pretty substantial -- is there currently a pretty substantial ice premium that you're able to get in the market?

Cameron Mackey -- Chief Operating Officer

So, yes and no, in other words, Ben, it's Cam. Yes, there is a premium, but don't understate that we've invested in the Handys because the general age profile and composition of that sector is heavily skewed toward older vessels that are just not acceptable to major customers around Europe and the Baltic. So we're enjoying the fruits of the decision we made several years ago to invest in that space knowing that flows and customer demands would continue to evolve and grow.

Now ice class, specifically, it's a great option to have, and it's a great option, not just for ice, but for the fear of or expectation of ice. So even in relatively mild winters, you can still enjoy the appreciable premium simply for the -- to hedge against the weather event that may present ice accretion.

Robert Bugbee -- President, Director

And just to highlight one of Cam's point, the Handys are really the first class in the products that is showing the effect of age, showing the impact of what happens when Product Tankers start to turn 15 years plus and as we go through, the others that will -- that will affect that.

Ben Nolan -- Stifel -- Analyst

Okay. Now, that's helpful. And then last for me, it does seem like with respect to -- well both what you did, we're able to do in the fourth quarter and then also what you've been able to book thus far in the first quarter. Seems like those rates are better with respect to the spot market that what we've seen in other places. And I'm just curious why you would, you know, or what you would attribute that to? Do you think it's a function as you say of having newer modern ships that are more efficient and more desirable? Is it the pools, what's -- what do you think is the most important secret sauce there?

Robert Bugbee -- President, Director

I think that we've got a great fleet. We've got a great product itself. We've got very good captain's crew, the operations people. And then you've got a chartering desk and you -- Lars isn't on the call so he can't blow his team's trumpet, so I'll do it. They've come in. They've spent now since last February, well March last year getting together, getting used to this fleet, changing things, adapting things, testing things, putting models, putting trading programs in.

And I think finally we've seen this first period where that hard work is starting to really pay off. And then the second thing is that when the market is like $8,000, $9,000, $10,000, $11,000, $12,000 a day, really the difference between a great trading team and a average trading team doesn't really show up because everything's a mess. And as soon as you start getting an expansion and in trading opportunity and right. That's when -- that's what separates the great things from the average things.

Ben Nolan -- Stifel -- Analyst

Okay, that's great. I appreciate it. Thanks, guys.

Operator

Thank you. And our next question comes from Noah Parquette with J.P. Morgan. Your line is now open.

Noah Parquette -- J.P. Morgan -- Analyst

Yes, thanks. I wanted to ask about the kind of the growing environmental push back I think on scrubbers. You saw the EU Commission, other commissions, the IMO report last week. How do you guys think about that risk, I mean in terms of maybe a strategy to push back on it or the timeframe of open loop scrubbers' ability to operate profitably? Has that changed at all in your line?

Robert Bugbee -- President, Director

Yeah, I'll let -- we'll let Cameron answer that question. But as an introduction to that, we're sort of in this unique position in Scorpio Tankers, despite investing in scrubbers and having the option to have scrubbers. We don't think it will happen, but the best thing it will for us right now will be to have scrubbers banded entirely in shipping.

If you think that one through, the benefit to Scorpio Tankers in terms of further increase demand for what it shipped would far outweigh any advantage we could have in the market in terms of scrubbers. So, I think, when you listen to Cameron now, you should sit there and think that we're able to take what I would take a non-extreme position. We're neither sitting there colored by the idea that we have to have scrubbers work or Oh my God, like some companies and some peoples view of scrubbers can never work. So, Cameron?

Cameron Mackey -- Chief Operating Officer

Sure. No, I think the media and probably the analyst community as well has been dominated recently by extreme views here. One extreme is that scrubbers are a long-term almost a permanent solution and business model adjacent to our industry, and the other extreme view is that they will never be. We will refer you back to what we've said previously is that the industry is in transition. We've maintained that scrubbers represent an opportunity for us with an anticipated lifespan -- regulatory lifespan of five to 10 years. We're maintaining that position.

If you look at the EU sort of position, recent position, it refers to a couple of interesting things. Number one is it relies on a German study from 2014 that put scrubbers in the context of other forms of potential harm to marine environments like runoff from farms, tourism, extraction of minerals, and so we acknowledge that there are potential harms from scrubbers along side of those other sources. The other thing I think that you'll find is that the EU, while it is free to act unilaterally, we'll have a great deal of difficulty making a sudden and significant reversal or change of course with the IMO.

The topic of whether environmental limitations to scrubber wash water are appropriate or not, will require many more months, if not years of study. And that's why we're not here to take an ethical or scientific view, we're just compliant with regulations. But we do think that the timeline for a scrubber in the broad context of the political sort of environment we live in is five to ten years.

Robert Bugbee -- President, Director

And I'd just like to remind everybody, the calculations that we've given in our websites and today is the actually -- based on the actual consumptions patterns that we've had on the fleet in 2018. They're based on the same information that is presented to our Board. And as Cameron says, they are sort of in the middle, they are not neither down the too extremes or less extremes.

Cameron Mackey -- Chief Operating Officer

And the final point I would make, Noah, is that even in the next few years, there isn't enough attention being paid to what the world does with all its residual fuel. So IMO 2020 is an exciting topic for shipping, but it is an existential topic for refiners. And when you look at winners and losers in refiners, the pricing risk for residual fuel or HSFO is very, very far down to the downside, something along the lines of where coal is priced, which is about half the current price per ton of HSFO.

Noah Parquette -- J.P. Morgan -- Analyst

Yes, that's really helpful. And then, yes, the details on the scrubber economics are great, thanks for providing that. Just to follow up on that. I mean in terms of uses of HSFO in the future, I mean, do you have any kind of thoughts on what that could be and whether the product tanker market will capture any of that new trade or will that be more of a dirty trade?

Cameron Mackey -- Chief Operating Officer

Thanks for the question. Well, as we've mentioned, maybe not directly enough, obviously what we're predominantly focused is on incremental demand of distillate from IMO 2020. And it's something that we haven't seen yet. We don't think the recent strength really is caused by that. But it's something we're looking forward to say starting in the third quarter. So there'll be a lot of incremental ton miles from distillate moving around.

When it comes to HSFO, it's a great question. There will be some barrels. It will be a dirty trade. There will be quite a few barrels moving from say locations of surplus, which is largely where simple refineries currently exist, Middle East, parts of Asia, Russia, et cetera, to areas where it's in deficit like the centers of more complex refining. But like I said, we won't be engaged too much in that. That will be a trade largely for the crude tanker space.

Noah Parquette -- J.P. Morgan -- Analyst

Okay. That's all I have. Thank you.

Operator

Thank you. And our next question comes from Magnus Fyhr with Seaport Global. Your line is now open.

Magnus Fyhr -- Seaport Global Securities -- Analyst

Hey, good morning. I guess, as long as you guys report quarterly earnings, we analysts have to come up with some estimates for quarter. So I was just curious if you can maybe provide some color on with all the cyclical recovery in the way on your thoughts about seasonality this year that would be very helpful? Thank you.

Robert Bugbee -- President, Director

Not really. As I said before, it's a very, very difficult one to gain here. And simply because we've got -- we've got these sort of calculations related -- you have to work out, what's going to happen with these new refineries that are coming up in the East, and how the actual refiners and the traders are going to place themselves going forward for the low sulfur that's coming later. So we're just not confident that normal process in earnings of the first quarter would be -- let's say, first quarter is strong, second quarter is also fairly strong, fourth quarter is strong, and the weakest quarter is the third quarter.

You don't really know, some people are calling that there will be extended refinery turn around in the second quarter. But if you take the United States right now, people -- I see reports that people get stressed out about the increase in gasoline inventories in the United States. Well, this is crazy because the United States is an exporter of products. We would want to see the United States build -- have good inventories if we're product tanker owner, so that they can export it. So it's just too hard to calculate. That's what we are trying to say here that if you are trying to invest or not invest because you think something is going to happen in the next four weeks or six weeks, you know, good luck to you.

Magnus Fyhr -- Seaport Global Securities -- Analyst

All right. Thank you, Robert.

Operator

Thank you. And our next question comes from Melvin Shieh with Bank of America Merrill Lynch. Your line is now open. If your line is on mute, sir, please unmute it. Okay. And our next question comes from Liam Burke with B. Riley FBR. Your line is now open.

Liam Burke -- B. Riley FBR -- Analyst

Thank you. Good afternoon. You mentioned several times during the call a benign supply, vessel supply environment. Is that something that can continue as sustainable and what's causing that low supplies, is it financing restrictions or just general rationality in the market?

Cameron Mackey -- Chief Operating Officer

Thanks. I think it's a combination of both. You have to remember that the last 12 months were extremely weak period for tankers. And when you look at the broader context of our industry, most of which is held in private hands that are diversified across different asset classes. We have people that have come straight out of a very weak dry bulk market, they were happened on both types of assets and into a weak tanker market. So there isn't a lot of spare equity capital around. There is certainly not a lot of cheap debt around, when you look at the condition of the traditional lenders to our industry, particularly for private players.

And then you add say the icing on the cake, which is some, let's call it, disarray or maybe disruption in the traditional shipbuilders. So Korean yards going through a difficult time, Japan continuing to consolidate and China continuing to consolidate. Can it continue forever? Of course, not. We're realistic, but what we do think is that will take a much higher and sustained market to really bring out additional capital to hit shipbuilders.

Liam Burke -- B. Riley FBR -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from Frode Morkedal with Clarkson Securities. Your line is now open.

Frode Morkedal -- Clarkson Securities -- Analyst

Yes. Thank you. I guess if you look at the peer group that's trading roughly at 60% of that maybe (ph). The question is, what does that tell you on the market, I mean, 2020 is almost here. People are generally bullish on the market and the rates you see are good. So why is the evaluations are lower in your mind?

Robert Bugbee -- President, Director

Well, I think two things. I think that, firstly, it's very difficult for people to adapt to NAV changes when if you take our company, a 10% increase in ship values, the NAV goes up $8. And you've seen the rapid shift in cash flows. So I would say that round about October, our NAV would have been somewhere around $2.40, $2.50, and now our NAV is $3.25, $3.30 going fast, and that's based of December 31 cash, going fast toward $4. That is that, so it is a question of information and speed that has come out.

And secondly, look, I think we have to be honest with each other, is that companies like Scorpio Tankers are being nothing but disappointing to investors for a very long time. So just because we suddenly have a market that's rapidly changes in four months doesn't necessarily mean, and especially as all the analysts now, every single analyst, we beat every analyst's expectation in earnings and guidance. So we can't blame investors for not valuing the company for that improvement or forward expectation, when no one else has. And we can't blame investors for being a little bit gun-shy when there has been such terrible disappointment for such a long time.

I think those are the reasons. But that will come as we consistently do well in cash flow, as information gets out to the market that where NAVs really are and that the cycles change. I'm confident that that spread will start now and the NAVs will continue to move upwards.

Brian Lee -- Chief Financial Officer

And just to reiterate that is -- that was the old share values that he was talking about $32, up to $40, and the new share count.

Frode Morkedal -- Clarkson Securities -- Analyst

Yes. (multiple speakers)

Cameron Mackey -- Chief Operating Officer

It will come. I mean, in the two big cycles I have been before, in 1945, in 2002-2003, at this point the stock generally trade well below their NAV. It's really ironic, but that's what happens. They make the turn in their fundamental, they start to generate cash flow, their value start to move up and they trade below NAV. And then whatever magic things happen, the shareholders start to go from fear to, well, this is actually happening. And then it's valued at a NAV metrics and then it starts to get valued even higher than NAV on a cash flow and a return to shareholder metrics. So nothing is at normal right now either. And we are not complaining about it. We've taken advantage of that situation and may continue to do so. It's a good offer for people right now.

Frode Morkedal -- Clarkson Securities -- Analyst

Yes. Okay. Thank you.

Operator

Thank you. And our next question comes from Max Yaras with Morgan Stanley. Your line is now open.

Max Yaras -- Morgan Stanley -- Analyst

Hey, guys. Thank you. I definitely appreciate the Slide 6 and the detail you provided here. Just digging in a little bit deeper, if we look at this estimated scrubber TCE savings, is this what you expect to charter your vessels at, let's say, like a premium to normal rates? And how do you expect this capture of the savings to develop over time?

Cameron Mackey -- Chief Operating Officer

So, as you know, being largely engaged in spot trading, we fix on what's called world scale. So basically a flat price for freight. So really this is a comp to what a non-scrubber fitted vessel or what our owned vessels without a scrubber would earn. And then as it comes to over time, we expect a few things, one is that depending on the spread we experience that number will move up or down, that over time, say the next three, five years, those comps may change depending on whether the rest of the industry continues to invest in scrubbers or not. So that's really it.

Max Yaras -- Morgan Stanley -- Analyst

Okay. And then any other color you guys could provide on the expected financing rates? And then the likeliness of you exercising the additional options for scrubbers, I believe, in those 18 vessels?

Brian Lee -- Chief Financial Officer

In terms of financing, we are looking into that, but we have many options. So we are just keep going with that. We got news, we will bring it up to you.

Emanuele Lauro -- Chief Executive Officer

The cash returns are so compelling. It really is something of a luxury question for us. As far as the options go, I'd say, at this point, we fully expect to declare the options. But being an option, we don't have to declare them today.

Max Yaras -- Morgan Stanley -- Analyst

All right. Thank you, guys.

Operator

Thank you. And we do have a follow-up with Melvin Shieh with Bank of America Merrill Lynch. Your line is now open.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. Good afternoon. It's Ken Hoexter. Sorry, good morning. Just, Robert, on the -- I know you've chattered a lot on rates earlier and a lot of head fakes in the past and the bounce in rates and your confidence in the structural balance in the past. Is there any difference in what makes you confident that you are going to see this structural bounce versus those head fakes you've seen or I guess, is there anything that could go the other way where the refiners are better prepared and the distribution network is ready -- more ready than we expect for the upcoming switch into 2020?

Robert Bugbee -- President, Director

Well, first of all, supply is low. So we've actually had supply constrained itself. And the future newbuildings are low, the ordering is at multi-year lows and the ordering as Cameron pointed out, recently in the last year or two, is there has been no money in the products industry is low itself. So supply is very constrained from the order book point of view, and will be further constrained in the sense that vessels are going to -- product tankers will turn 15 years or older and move away from the clean petroleum trade. So the supply side is very, very constrained here.

We, in either events, we are seeing a improvement in the product market with nothing to do with the IMO 2020 as we started with. This is simply old fashioned increase in demand as a result of the fact that we work through an inventory overhang in the world of product tankers, and we just have a continued growing demand for products in the world itself.

So, I guess, the -- what could derail it is if we had a complete world slump, a 2002 or 2009 event or something like that as to the refinance preparedness for IMO 2020. The refiners, the traders are trying to charter in a lot of product tonnage. So, that tells us that they are prepared for a very steep increase in rates and demand for product tankers.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

That's helpful. I want to come back. I know you guys gave great detail on -- into Noah's questions before on the scrubbers. So, thank you for that. But, given the port span of the use of open loop scrubbers in some regions, any thoughts on change in payback periods for your investment?

Emanuele Lauro -- Chief Executive Officer

Sure, let me help you with that. So the slide that James prepared reflected what we had said previously on the last call I believe, which was, we don't doubt that port states, which essentially is from 12 miles out in may and in many cases will prevent the discharge of scrubber wash water. It is entirely consistent with existing limitations they have for over port discharges from ships today.

So, no, these -- it's not at all a surprise to us. So baked into the calculations on that slide is an outrageously conservative assumption which is every port in the world acts like Europe, which is the entire region bans the use of scrubbers. And only in the open ocean can you use an open loop scrubber. And as you know, that still is a small fraction of the overall utilization period of a scrubber on one of our vessels. So, we've taken the most conservative assumptions we could to just reassure our audience here that the payback is still compelling.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

And if you wanted to change them to close loop -- did you highlight how much that would time to do so and cost associate?

Emanuele Lauro -- Chief Executive Officer

No, we haven't. We are taking the view that that's something we may look at down the road. Again, our estimated view of the scrubbers' useful life from a regulatory point of view is five to 10 years. So, something we are factoring in for later on.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

And then, just lastly, your cost per scrubber increased, did I catch that right, from $1.5 million to $2.2 million up to $2 million to $2.5 million. Is there anything that's driving that?

Emanuele Lauro -- Chief Executive Officer

No, I think, again, it may have been a miscommunication on our part. The cost of the scrubber itself is about $1.5 million the actual unit and then on to that, you have to add some installation and commissioning cost. So that's how you get to about $2.2 million.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Okay. All right. Great. Look forward to -- I guess, as we progress through the year seeing the rates continue. Thanks. guys.

Emanuele Lauro -- Chief Executive Officer

Thank you.

Brian Lee -- Chief Financial Officer

Thank you.

Operator

Thank you. And that does concludes today's question-and-answer session. I would now like to turn the call back to Brian Lee, Chief Financial Officer, for any further remarks.

Brian Lee -- Chief Financial Officer

I'd like to thank everyone for joining us together and we look forward to speaking to you soon. Take care. Bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.

Duration: 59 minutes

Call participants:

Brian Lee -- Chief Financial Officer

Emanuele Lauro -- Chief Executive Officer

Robert Bugbee -- President, Director

James Doyle -- Senior Financial Analyst

Amit Mehrotra -- Deutsche Bank -- Analyst

Randy Giveans -- Jefferies -- Analyst

Cameron Mackey -- Chief Operating Officer

Greg Lewis -- BTIG -- Analyst

Jon Chappell -- Evercore -- Analyst

Ben Nolan -- Stifel -- Analyst

Noah Parquette -- J.P. Morgan -- Analyst

Magnus Fyhr -- Seaport Global Securities -- Analyst

Liam Burke -- B. Riley FBR -- Analyst

Frode Morkedal -- Clarkson Securities -- Analyst

Max Yaras -- Morgan Stanley -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

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