Scorpio Tankers (STNG) Q3 2020 Earnings Call Transcript

Scorpio Tankers (NYSE: STNG)
Q3 2020 Earnings Call
Nov 05, 2020, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Scorpio Tankers Inc. third-quarter 2020 conference call. I would now like to turn the call over to Brian Lee, chief financial officer. Sir, please go ahead.

Brian Lee -- Chief Financial Officer

Thank you, and thank you, everyone, for joining us today. Welcome to the Scorpio Tankers third-quarter earnings conference call. On the call with me today are Emanuele Lauro, our chief executive officer; Robert Bugbee, our president; Cameron Mackey, our chief operating officer; Lars Nielsen; commercial director; David Morant, managing director; James Doyle, senior financial analyst. Earlier today, we issued the third-quarter earnings press release, which is available on our website.

The information discussed on this call is based on the information as of today, November 5, 2020, 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 the earnings press release that we issued today as well as the 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 broadcast live on the Internet and is also being recorded for playback purposes.

An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. There is a short presentation that is on our website at scorpiotankers.com on the investor relations page under Reports and Presentations. If you have any specific modeling questions, you can contact me later and we can discuss offline. I'd now like to introduce Emanuele Lauro.

Emanuele Lauro -- Chief Executive Officer

Thank you, Brian, and good morning or afternoon. Thanks for being with us today. The third quarter is seasonally the quietest period of the year for CPP tankers, and this normal seasonal pattern was further reinforced this year by a steep throw-down in maritime as well as onshore inventories. That said, I'm pleased to say that our earnings have continued to show progressive improvements from the equivalent quarter in 2019 and 2018, respectively, despite the extraordinary events of 2020.

So, we're pleased with the balance sheet, the progresses that we've made over the year, which has allowed us to retire debt, as we have outlined on the presentation that Brian was referring to, and on the earnings press release. We've also almost concluded our extensive investment and capex in dry-dockings and scrubber installations. So, the vast majority of that is behind us now, which is another positive. As far as market update is concerned, our Commercial Director Lars Nielsen will give us his views on the market in the next few minutes.

So, I'll leave that to him. And overall, put simply, I would observe that we are well-positioned for the stronger seasons and normalization in the global economic activity. In particular, our strategic focus on modern LR2s over the last couple of years has started to bear fruit. We see this in the rates and the strategic decisions that we've taken to stick to clean trades on our LR2s has really beared fruits in 2020.

It is early to assess the impact of further lockdowns. You know, we are experiencing it in a wide scale in the Northern Hemisphere these days. And as I said, very difficult to assess the impact that this will cause. However, inventories are largely back to normal levels.

Many parts of Asia and the developing world are back to near-normal levels of economic growth. We see the long-awaited opening of the new refineries in the Middle East, adding to ton mile demand. Continued with the ongoing closure of all the refineries, we actually see the impact -- the positive impact ton -- on ton mile. Supply continues to be benign against the backdrop of a rapidly aging underwater fleet.

We've said this in the previous quarterly calls, and we continue actually to see the description previously provided unravel quite favorably. So, on the supply side, you know, we feel comfortable. We believe this following wind will be a significant support to rates over the coming quarters and years and look to the future with confidence. We, of course, have the question mark put upon us of COVID and 2020 in general but, however, the fundamentals do look normalized.

And as I said, we do see and look at the future with confidence. With this, I'd like Lars to go through the market update, please. Lars, over to you.

Lars Nielsen -- Chief Operating Officer

Thanks, Emanuele. Good morning, everybody. As expected, Q3 2020 has been a challenging period in the product tanker markets. Lower refinery production and margins, hurricanes and asymmetric global demand recovery being key themes throughout the period.

A key driver during the initial phase of COVID was the CPP commodity market contango price structure. Fast forward now to Q3, and that market pricing inertia is completely phased out, thus reducing the demand for floating storage, short-term time charters, and the structural delays in ports. As this catalyst for the tanker market wound down, and the incremental tonnage was reintroduced back to the spot market, rates did decline, although the initial resiliency of the spot market was noticeable. All this being said, we saw a significant improvement in time charter rates in Q3 '20 compared to Q3 '19 and '18.

While storage and short-term contract coverage carrying over from Q2 helps, the real underlying driver was the increase in demand from the ease of restriction on businesses and land-based travels. This relative outperformance in Q3 has resulted in a slower start to Q4 due to heavy refinery offline periods, which were a combination of routine and extended maintenance and a proactive response to weakening refining margins; a record-breaking Atlantic hurricane season, which decreased refinery runs in the major U.S. Gulf refining region; and we've seen an accelerated and substantial drawdown in onshore inventory levels further impacting tonnage demand negatively in the prompt. However, these headwinds do have some positive outcomes as U.S.

Gulf refined product inventories declined 23.3 million barrels since July and global light distillate inventories now approach five-year normalized levels. And we've seen the eastern demand picture emerge out of their COVID lockdown, demonstrating V-shaped recovery curves, particularly in China and India. And finally, the acceleration of closing older, less efficient refining capacity. It is important to highlight the impact of the refinery rationalizations currently under way.

The widely reported closures of several less efficient refineries has certainly cut headline output. Roughly, we track 2 million barrels a day of announced refinery closures globally, including the temporary closures and the conversion to a storage or distribution terminal as opted by several marginal or regional refineries, and you could end up with a global reduction of 3.5 million barrels a day. These refinery events seem to be equally spread around the globe. In the medium term, these developments will support increased ton miles as products need to be supplied from further afield supercharging the tonnage demand picture.

The immediate reduction output from inefficient refineries is a vaccine work taking for the long-term benefit. This rationalization has been widely discussed as new and sophisticated refineries are coming online. And simply put, the older units just can't compete economically. As a short-term consequence from the pandemic, these refinery closures, coupled with the large stock draws, have had an immediate impact in spot market weakness.

But to illustrate this inherent flexibility, we're already starting to see glimpses of demand rally and the potential for V-shaped recoveries as evidenced in the Asian markets. Chinese gasoline demand is already up 6% year on year. Nonetheless, the current second wave will likely underline the precarious nature of any initial recovery. Early Q4 has essentially so far -- has so far traded sideways to slightly weaker on average globally.

And despite the challenges the market faced through the second half of 2020, we remain cautiously constructive on how the year will close out, setting a positive recovery tone as we approach winter. Generally, the product markets have overall managed compelling vessel utilization levels considering the trading headwinds and the bearish factors previously detailed. Overlaying the seasonal historical trends, the positive CPP market fundamentals of constrained new build ship supply, inherent ton mile increase and an accelerating age profile, this will provide robust momentum as we move into '21 in the post-COVID world. Thanks, and I appreciate the time.

And now I'll hand over to Robert. Thank you very much.

Robert Bugbee -- President

Hi. Hello, everybody. Thank you very much, Lars. We remain fundamentally very optimistic.

I think it's important for us to separate the disappointment we have and all our shareholders have related to the stock price compared to the underlying position of the company itself. This year -- the end of this year is going to be a great year in terms of earnings, in terms of operating cash flow and in terms of getting a lot of things done. We would have completed almost all of our dry-dockings, our upgrades related to water ballast or scrubbers and have a fleet that's there, set for a future, you know, full recovery around the world. As Lars said, we're already seeing, you know, good strong signs in the East.

East is developing, you know, very well. And we're seeing the structural signs of the new refineries coming up in places that's going to increase ton miles. And we're turning toward a, yes, there are issues right now in Europe. Yes, there is issue -- COVID issues in the United States.

But we should remember a couple of things. The United States, we do not ship toward the United States. It is not that relevant to us what the U.S. demand are for products during perhaps an uptick in the next sort of month or two related to COVID.

What is more important to us in terms of demand is that the Southern Hemisphere countries and the Southeast Asia, Australasia, those countries are turning toward their summer. And the cases are either right-down, as is the case of many of the Asian countries, or are dropping as it turns into the season and turns into that demand. As it comes to the summer, yes, there may be fewer people driving. We're used to that, but it's a heating season.

And we're reasonably confident, 2020 has been extraordinary, but we will go out on a limb to say that there'll still be a winter in the Northern Hemisphere. That -- it's hard to predict things this year, but that, we're still pretty confident about. Going forward, the supply and demand now as a result of COVID, as a result of these changes to the refineries, etc., as a result of nobody ordering vessels, the aging of the fleet, look extraordinarily compelling. So it really -- we see it as, yes, changing the season, doing this, slowly developing, but this could kick-start extremely rapidly at any time to the extent that the world can look forward and replace a very dark cloud of uncertainty with perhaps hope and sunshine, you know, especially to the degree that a scientifically accepted vaccine were to be accepted at somewhere in the world over the next sort of six, eight months or so.

And with that, we'd like to open up questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Omar Nokta from Clarksons Securities. Your line is open.

Omar Nokta -- Clarksons Platou -- Analyst

Hi. Thank you. Hey, guys. I wanted to ask about liquidity, but maybe, and if I may, before I ask, since Lars is on the call, you spent some time talking about the market.

I didn't want to at least ask about naphtha arbs. But for much of the past few years, those arbs have not existed, and that's taken away cargoes from the product market. You know, there was a brief opening in May, but I would say, you know, that went away. But when we look very recently, it appears that those arbs have actually really widened in Asia, at least over the past month, and then more recently, maybe this week, we've seen it in Europe.

And so maybe just, Lars, if you could, are you seeing any noticeable impact yet on the market, whether it's MRs or LRs in Asia or Europe as a result?

Lars Nielsen -- Chief Operating Officer

Yeah, hi. For sure, we have seen a widening of the naphtha arbs. And we, certainly, have also enjoyed a lot of the cargoes. Most of those cargoes, obviously, are loading out of the Baltic, the continent, or the Mediterranean.

And it is a constant flow at the moment. And that business certainly is open at the moment.

Omar Nokta -- Clarksons Platou -- Analyst

OK. Thanks. Just wanted to check on that. So, we're seeing it in the Baltic and in Asia.

So really both sides of the -- both hemispheres?

Lars Nielsen -- Chief Operating Officer

So, I mean, basically, it's moving from the west to the east, right?

Omar Nokta -- Clarksons Platou -- Analyst

OK, OK. Got it. And then maybe -- sorry, Brian, just I wanted to -- I know you said, let's save some modeling questions for later, and I don't want to -- I don't think this is modeling as much as just simply thinking about the cash position and the liquidity. And I just wanted to run through some numbers with you.

You have $209 million of cash as of yesterday. And you've outlined in the presentation and in the press release the various avenues of liquidity. You've got the $44 million lined up. You've got commitments for $64 million, and you're talking about refinancing 11 ships that would add $75 million.

So, all together, we're talking, you know, pro forma $390 million of cash and liquidity that you -- when you add all that up. So maybe just first question, just off the bat is, am I thinking about that right? Is that pro forma $390 million? am I on the right path with that number?

Brian Lee -- Chief Financial Officer

Yeah, you are from all those points. Absolutely right.

Omar Nokta -- Clarksons Platou -- Analyst

OK. And so then -- when we look then at the debt repayments, you know, $33 million during the fourth quarter seems pretty manageable from here. And then when we look at 2021, there's $390 million of debt due, but that includes roughly $100 million or so of maturities. So really, it's $290 million that we could say is amortization.

So, when we look at it, going into 2021, pro forma $390 million of cash liquidity, $290 million of debt repayment. That leaves you basically $100 million at the end of '21, assuming, basically, that -- maybe a worst-case scenario, that 2021, you don't generate any cash flow from operations. You're still coming out of '21 with $100 million of cash. I guess that -- from my perspective, that seems pretty good given the market, especially the opportunity maybe for things to really start to kick upwards, maybe in the second half of next year.

But maybe just on that $100 million "number," are you comfortable with that as a figure, thinking about 12 months from now?

Brian Lee -- Chief Financial Officer

Well, that's comfortable enough to be operating, absolutely, $100 million. We can operate in that. But as you're pointing out here, you take away that $290 million of amortization and then out of the top line number, that reduces your breakeven rates significantly by $6,000 a day, down from so -- below 17% at this point because interest rates have fallen, so we're below 17%. And then you go down below another $6,000, you're below $11,000.

So, you're in about the 10.5% area.

Robert Bugbee -- President

So, Omar. It's Robert. I need to add to that so everyone is sort of on the state. I mean, yeah, that's the correct mathematics, but you're also describing a market at that level that is lower than where it is right now during what Lars has described as lockdown, the worst period of the year, the refineries closing, not yet got the benefits of the seasonal change.

You're describing a market worse than today for the whole of next year all the way through till December 31 next year. So, the comp -- Brian is very clearly saying to you, yes, he would agree with your $100 million would be left, and he can manage that $100 million would be left. But we're not buying into the -- we don't -- we're not giving guidance for next year, but we're not buying into the idea that the market is going to be that low for the next year.

Omar Nokta -- Clarksons Platou -- Analyst

Yes. Yeah. Definitely, we're sitting here in the -- basically, the really trough worst-case scenario situation. Maybe just one quick follow-up.

The – you know, you've outlined obviously a bunch of, you know, different avenues of cash and liquidity. One thing that you haven't really touched on or done is really asset sales. You've done sale leasebacks. How do you think about --maybe some of those MRs you have built 2012, 2013, you know, they're still relatively young for everybody -- for the global fleet.

But for you, they're on the older side. Any thoughts of maybe monetizing those just to improve liquidity? Or are you comfortable with the way things are?

Robert Bugbee -- President

Well, I think you've done your own calculation in terms of liquidity, and we've addressed a really severe market in terms of liquidity. And we have given our reasons as to why we think -- why we would expect that the market would not be at those levels throughout the whole of the year. But the question in terms of monetized vessels, that way, is perhaps a different question to liquidity. There can be a time where you've got to -- there's a change here from the actual running of dealing through COVID and the operational position to when we start to fully get comfortable with that.

And it really is then about getting some return for us all in terms of the stock. And then because there's stock already is woefully below its NAV, and if you had any form of improvement and, you know, prices -- price pressure would move up because those vessels maybe the older vessels in our fleet, but that's still, you know, fairly new vessels compared to the world's fleet. So, vessel values would go up, and then there would be a -- then with a fleet as large as ours, you would anyway want to do pruning. And you would be probably thinking it would be -- the correct thing to do to sell some of those vessels just to increase liquidity to take down the arb at that point that would probably still remain between the net asset value and the stock price.

Omar Nokta -- Clarksons Platou -- Analyst

Yeah, yeah.

Robert Bugbee -- President

In other words, you would fund basic operational liquidity, you would fund buybacks, for example.

Omar Nokta -- Clarksons Platou -- Analyst

OK. Got it. Thanks, Robert. That's really helpful.

And thanks, Brian.

Operator

Your next question comes from Greg Lewis from BTIG.

Greg Lewis -- BTIG -- Analyst

Lars, just kind of wanted to ask you a little bit about as we continue to hear about potential shutdowns, you know, related to COVID, is -- whether that's in Europe or elsewhere, is that starting to create any issues around delivering cargoes, i.e. You know, if we were to flash backwards to when this initially happened, there started the delays in deliveries, you know, whether we call that real storage or not, is that something that we should be thinking about over the next couple of months if we kind of go into a prolonged period of, you know, lockdown slowdowns? Or like just -- I'm just kind of curious if you have any thoughts around that.

Lars Nielsen -- Chief Operating Officer

Greg, I have to say that we're not putting any kind of reemergence of a contango or a storage play into our kind of analysis for the Q4. If it does happen, that'll be positive for our business. So, you could say that, you know, it's there as a potential. I think it's probably more unlikely to happen under the second lockdown, a, because I think the oil prices have the -- pretty much discounted these things already.

The second thing is, I think the refineries are on min-ops already. And with the storage is coming down, I think, it has to be a really, really bad lockdown, where suddenly it's taking people by surprise, where certainly the oil has been produced and leads to find a home being on a ship. So, I think it's unlikely to see a kind of a reemergence of a second contango as we saw the first time around. But if it does happen, as I said, that will just be an added benefit.

Greg Lewis -- BTIG -- Analyst

OK. Great. And then just the other one -- the other thing I wanted to kind of talk a little bit about is, you kind of mentioned in the prepared remarks about marginal refineries, you know, whether they're shutting down or -- permanently or temporarily, just -- I mean, I guess, not knowing when the market is going to normalize, or whether that's some time next year or the year after, I guess, my question is kind of coming out of this when we do normalize, and just thinking about what's happened to some of these refineries, whether they're in Europe or elsewhere, you know, how are you guys -- how is your company kind of thinking about what product tanker demand is going to look like in kind of when we make it through this? And just kind of -- and that's under a backdrop of clearly, you know, there's been a lot of negative sentiment, at least, or headlines around oil demand. And so, I'm just kind of curious what your guys' kind of view is on that.

Thanks.

Lars Nielsen -- Chief Operating Officer

OK. Well, I mean, I think it's a clear fact by -- and agreed by a lot of people that with these refineries, for the medium term to the long term, you know, oil has to be shipped further afield. I think, for sure, this is going to benefit, in particular, the LR2 and the larger vessels in as much as they need to think about dollar per ton when they have to move product. It is an interesting point when we talk about that these refinery events have happened globally.

I mean, you know, it's right from the U.S. West Coast to the U.S. East Coast to the places in France, in the Baltic. You know, the latest one was the one that BP announced closing down Kwinana in Western Australia.

And these things, you know, have definitely a big impact as they need to then start thinking about where is the supply coming from. And I think it's a pretty good thought to say that, you know, with the Middle East adding over 1 million barrels of complex refining capacity over the next year and a half, mainly from Jizan and the Aseer in Kuwait. And also, you know, these are highly specialized refineries that will be able to supply these particular places where otherwise they had localized refineries. And we will start seeing a huge uptick in ton mile because it is quite clear that you need a lot more ship, and suddenly, you don't have a refinery in your backyard, but suddenly, you have to think about, a, security of supply and also the distance that has to be covered.

Greg Lewis -- BTIG -- Analyst

OK. Great. Thank you.

Operator

Your next question comes from Jon Chappell from Evercore. Your line is open.

Jon Chappell -- Evercore ISI -- Analyst

Thank you. Good morning. Good afternoon. Brian or Robert, I think the natural extension from Omar's line of questioning then is what you do with the liquidity? And is now the time to do something with it? So, I think three months ago, we were talking about paying off high-cost debt, and you had bought back like $52 million or $53 million of the converts.

So, it sounds like at the depths of this trough, spare liquidity, doing a lot of things to raise liquidity, is it still way too uncertain or too early to revisit taking out the converts or some of the higher-cost pieces of paper, or, you know, as you insinuated and also mentioned in the press release, to be more aggressive on the buyback?

Robert Bugbee -- President

I think we've certainly created the situation where we have options. We've certainly laid out -- I mean, I think the – also, the natural extension -- you're correct, the natural extension of Omar's questioning. But also, in that questioning, it's a little bit like the philosophy that we're trying to put a strong wall behind our back here. We're sitting down and we're saying, look, this is what we think that, you know, 2020 has been extraordinary.

It has shown us some wonderful things, some terrible things. We're not entirely sure, but we are creating that liquidity that -- and have done so. If you noticed here, we actually haven't bought back any stock or any converts for, you know, some days now. And obviously, we've been unable to because of lockouts.

But also, you know, I don't think we would have done. We've done our -- put our priority on, you know, building liquidity, etc., I think that now that we can see from Brian's commitments, committed finance and the cash we've got, that we're pretty well set, that we've gone through all those things, we could last all the way through till the end of next year on some pretty disastrous earnings and -- earnings or market scenarios. So that gives us the optionality itself. But I think that the way to look at it is that you don't want to give up that optionality until you'll use that optionality unless you're really sure.

So, I don't think you go out tomorrow morning and start, you know, buying stock back like crazy or trying converts like crazy, but you gently monitor. And if you -- the one great thing is we really don't have really any reporting now until February, March, so the company can act in a, let's say, a quiet or way to the market because the idea of buying stock or converts is to buy them for our shareholders at the lowest price. So, we can just sort of monitor and, you know, see how that market develops. And one way to look at it would be, you could use excess cash above the $10,000 a day or whatever that notional level is while keeping that buffer, that high liquidity there, until you get some, let's say, definitive certain position.

I understand this is a very vague way of answering, but we don't have -- there's no value for our shareholders to give a road map to buybacks or convert buybacks.

Jon Chappell -- Evercore ISI -- Analyst

OK. And then the follow-up and, you know, somewhat forgive me for this, but sometimes perception becomes reality. With the Scorpio Bulkers selling its bulk fleet at a pretty accelerated pace, and Scorpio Tankers, you know, coming down to these levels, which, as you mentioned before, is pretty absurd relative to your NAV. Has there been any commentary? And excuse me for not listening to the SALT call, but has there been any thought or commentary on SALT's long-term position with Scorpio Tankers? Is that part of the plan to finance the wind vessel? Or is that completely separate from the sell-out of the dry bulk vessels?

Robert Bugbee -- President

I think the commentary from SALT has been that it doesn't have much capex outgoing. So, whatever it does, you know, signs it -- signs that contract has been very clear that it doesn't have much capital commitments until 2022, and that you -- what the -- you're really, really creating a lot of cash there from SALT in the sale of its assets. And, you know, SALT, itself, is very well aware that, you know, now wouldn't be the ideal time or -- for it to sell STNG and as it wouldn't have to do anything that it wants to do. And I'd leave it at that.

Jon Chappell -- Evercore ISI -- Analyst

OK. Thank you, Robert.

Robert Bugbee -- President

Thank you.

Operator

Your next question comes from Randy Giveans from Jefferies. Your line is open.

Randy Giveans -- Jefferies -- Analyst

How are you doing? How's it going?

Robert Bugbee -- President

OK, Randy. How are you?

Lars Nielsen -- Chief Operating Officer

OK, Randy.

Randy Giveans -- Jefferies -- Analyst

Good, good. So, I'm not sure if Lars is still on, but certainly appreciate all the quarter-to-date rate guidance. And in the prepared remarks, you know, you pretty much made it clear that the winter should be better. So just looking at quarter-to-date rates relative to maybe today's rates, or obviously, the next few weeks here, how do those compare? And then in terms of timing, do you have any degree of confidence in terms of when LR2s can get to the mid-20s and MRs maybe to the mid-teens?

Lars Nielsen -- Chief Operating Officer

Hi, Randy. I can't give you a specific date on these things, Randy. We will look at this more holistically in terms of what's going on, and you make some calls on these things. One thing is for sure that, you know, every single year, we've had a winter market.

And the winter market has always been very strong for a period that tends to start after Thanksgiving, and then, you know, through to February. That is the case also in the, let's say, the weaker years we've seen in 2017, '18. And I don't see why that should not happen to some extent this year. Now, I did mention that, you know, the second wave and so on have some elements to it that we can't really 100% say what that means and when that's going to happen.

But certainly, as, you know, heating oil demand starts kicking off or the Southern Hemisphere, you know, starts kicking off as well that there is, obviously, product that has to be moved. You know, I also mentioned, I think, in the prepared remarks about that we've seen stock draws, you know, that are substantial already so far this year since the high of the corona lockdown first time. At the same time, we also remember that, we think, we had about 85 million barrels of floating storage. That's taken down to about 20 million barrels now.

So, it doesn't take that much to kind of move that needle. So, to the first part of your question, talking about how weak the market is. It is certainly weak right now as we anticipated for the third quarter. That's moved into the fourth quarter.

But the thing, I think, you tend to also should look about that, does that mean that ships are just sitting and doing nothing? That's not really the case. So, the notional element of this in my mind, and to try and explain it better, is that our ships are still moving. So, it -- and I think other people ships are moving as well to a very large degree. And it doesn't take that much that suddenly you say, well, the export in the U.S.

Gulf starts moving back up again after the numerous hurricanes that have, you know, stopped a lot of the production down there, moving across again. You started to see arbs move as well. The Asian supply envelope is going to be a big-ticket item for the fourth quarter as well, apart from just some weather-related issues in the Northern Hemisphere. So, you know, if you have to put me down as a date why? I think Thanksgiving.

I think it's pretty much the -- tends to be around there where we start seeing a stronger winter market, and I don't see why that should not happen this year as well.

Robert Bugbee -- President

I'd just like to add, Randy. I'd like to add to that is that just in its basic terms, I think that if everyone is honest with themselves, if we look at research positions or indexes or things, I don't think any of you really would imagine that the LR2s are booking at, you know, this 18-plus percent number right now. And that is a very healthy sign in the extent to add, that's all about that Asian and Australasian market and that development there. But the fact that we don't have to work too much, you know, it's a big difference in taking a market from 18% to what you call 25%.

That's a much easier accomplishment than taking if the market was down at 9% and 10%, even taking it to 15%. So, I think that the one thing that is in also Lars' favor here and talking about, you know, I appreciate you asking him for a date of recovery, I ask him not just the date but the time of day, what time of day it will be. But one aspect related to his confidence would be those LR2s are working off a base level that, you know, most people, if they're really honest don't -- would not have expected that number to be what it is today.

Randy Giveans -- Jefferies -- Analyst

Yeah. That's fair. And I know the second part of that question was a stretch, but I appreciate the Thanksgiving commentary. Just more on the first part, just trying to see where we are today relative to the last, I don't know, month or six weeks, if those quarter-to-date rates are kind of higher than where we are today or if it's kind of in line with that currently.

Robert Bugbee -- President

They're about in line.

Randy Giveans -- Jefferies -- Analyst

Oh, great. And then just last question for me. Any updates on those fixed income investor calls in September? I know we haven't seen much announcements since then. So, is that kind of off the table? Or are those talks still ongoing, and any kind of color?

Robert Bugbee -- President

No. We didn't continue there. The answer we can give you now that we've been able to, you know, disclose it is very similar to that you've seen in our press release today and Brian's slides that we had alternatives to increase liquidity that were just much more competitive.

Randy Giveans -- Jefferies -- Analyst

Got it. Yup. Makes sense. Well, hey, thanks, again.

And looking forward to Thanksgiving for multiple reasons now. And I will keep in touch.

Robert Bugbee -- President

Thank you.

Operator

Your next question comes from Ben Nolan from Stifel. Your line is open.

Ben Nolan -- Stifel Financial Corp. -- Analyst

Hey, guys. So, I think it's all been pretty straightforward. I -- the one thing is -- and actually, you might have heard. I asked this on the Ardmore call yesterday a little bit, and it's just something that I've been thinking about.

The refinery aspect is very compelling in terms of closing and new refineries opening in the Middle East, but there is that one really big refinery in Africa. It seems like that's mostly in LR2 market. Does that give you any cause at all that if -- West Africa is a major LR2 trafficking points so far as I have seen. The -- is that like a big caveat to the rebalancing equation, or not really?

Robert Bugbee -- President

Before I let James and Lars answer, this is the refining -- this is the one that was meant to start in '20, then was '21, then was '22, and now might be '23?

Ben Nolan -- Stifel Financial Corp. -- Analyst

No. I -- from what I understand it's Q1 or Q2.

Robert Bugbee -- President

OK. Then the -- James, Lars, would you like to answer that?

James Doyle -- Senior Financial Analyst

Sure, Robert. Ben, it's James. So, it's certainly a big refinery. I think, at this point, I was thinking it was going to come online in 2022.

Once it's at full capacity, it will produce around 250,000 barrels of gasoline, 100,000 barrels of diesel, 85,000 barrels of jet per day. But to put this into context, last year, Africa had about a 2 million barrel a day refined product deficit, of which gasoline and diesel were about 1.8 million barrels. So even if all the refinery output is consumed domestically and oil demand in Africa doesn't increase for the next few years, it would still need about 1.6 million barrels a day of refined product. But I do think this is a really good question because it's showing the lack of refining capacity emerging -- in emerging market economies where oil demand is growing.

So Latin America has a very similar situation, except they're only adding around, you know, 100,000 barrels a day over the next few years. And, I guess, lastly, I'd say the cost of the refinery in Africa is something like $10 billion. And if you include the fertilizer plant and the pipeline, it's like $15 billion. So, whether it's Jizan in the Middle East or Dangote in Africa, you know, the decision to build these refineries was made as early as 2013 and 2015.

So, if you start to think about the cost, the time it takes to build the refinery and what's going on in the global refinery landscape today, it'll be interesting to see what projects are announced or canceled going forward. But as Lars mentioned, outside of the Middle East and China, we're seeing more closures than additions. And I've tracked in our presentation at least a million confirmed -- a million barrels of confirmed closures so far. So, I guess, kind of putting this into the overall context of the market, it's certainly a big addition to Africa, but I don't think it'll solve the product deficit.

And I think there's more exciting development such as the Middle Eastern refineries coming online and the global closures that will happen before this does.

Ben Nolan -- Stifel Financial Corp. -- Analyst

All right. Perfect. And James, I appreciate it. Those are very comprehensive and helpful answers.

James Doyle -- Senior Financial Analyst

No problem.

Operator

Your next question comes from Amit Mehrotra from Deutsche Bank. Your line is open.

Unknown Speaker

This is Kevin, on for Amit. I just had a quick question. Is there any potential for the company to diversify away from the product tankers into a new segment or a vertical completely? I think the answer is a clear no, but it's relevant in the context of what's going on at SALT?

Emanuele Lauro -- Chief Executive Officer

You're correct. The answer is a clear no.

Robert Bugbee -- President

Yeah. The answer is a clear no. Yeah, they're completely different markets.

Unknown Speaker

Right. Perfect. Thanks a lot for the question. Thanks, guys.

Robert Bugbee -- President

Sure. Thank you.

Operator

Your next question comes from Ken Hoexter from Bank of America. Your line is open.

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

Great. Good morning, or good afternoon. Just wanted to follow up on your timing of rates when you talked about kind of seeing the winter bounce around Thanksgiving. Maybe Robert or Lars, your initial thought on the -- your thoughtful rates into '21 given the storage impact, kind of what seasonality we should -- or changes in the seasonality we could see as we go through '21?

Robert Bugbee -- President

Lars, maybe I'll just go first on this thing. So, you have the natural seasonality, which Lars can go through, so that's in more detail, but that's the winter part of it. And then we get into the spring, the refinery downturn periods, and then how that's going to be intertwined related to COVID and, hopefully, the final opening up of, let's say, the Europe and the United States come, you know, hopefully, the summer and latter half of next year. But Lars, would you like to take that?

Lars Nielsen -- Chief Operating Officer

Thanks, Robert. I mean the way probably to look at it is, if you look at ton miles globally, you know, the ton mile as measured is in billion-ton miles. And I have a stat that says it's about 225 billion-ton miles. And that is exactly the same as 2019 with a little bit of a drop now, obviously, in the fourth quarter.

So, we're probably going to be flat. What I've seen in the analysis for next year from some of the companies that I've seen is that it's moving up by 4% to 5%, up to 236 billion, 237 billion-ton miles. That is considered to be true. I mean that is a lot of ships that have to be moved in addition to where we are now.

So, you know, what rates will be, I can -- 100% say it's going to be a lot better than it is today. It probably is not going to be what it was back in April and June when we suddenly had a huge contango play, but what we're looking for is sustainability. And with all the different things that are in place now with its profile, the supply of vessels, you know, being benign, the fundamentals generally, and obviously, with the stocks going down, it does not take very much before the relationship also between refinery runs and product trade, suddenly, also correlates back again to 100%. So as far as I can see, '21 with COVID, let's say, coming behind us, and we have a vaccine in place, and people start really moving across, then you'll start seeing a substantial increase in market.

What that means in absolute terms, in TCEs, I would rather not say right now.

Robert Bugbee -- President

I think also, to add to Lars, is that we're really ignoring this. And it's so difficult to sort of -- to look past what's happening at the moment, look past this dark cloud that we're seeing in front of it, the world seeing in front with the COVID. But if you're looking at it already, look at it in an Australasian perspective or the Far East, their economies are coming along great. Their demand is coming along great here.

So, the demand is going to sort itself out. We don't know exactly, but it's going to. But the supply side is fantastic. The supply side is absolutely incredible.

As we turn the year again, and a whole bunch of more MRs are going to next year, there are almost triple the number of MRs that are going to turn 16 years old than have been ordered this year. The MR -- the supply side in lockdown this year has resulted in negligible orders, but that remorseless clock is turning on that aged fleet. And that is in conjunction with continued consolidation. We're seeing an undercurrent year of consolidation in pooling.

Hopefully, we'll see some rational consolidation in -- you know, in some of the companies in the continuing theme of people buying each other or merging to create consolidation. But either way, we're going to see consolidation because vessels are going to leave this clean petroleum product market and move away in the position. And that's something that seems to be, you know, really ignored right now. We're continuing to see environmental pressures that's going to really help the newer fleets, those vessels that consume less carbon to do their voyages, etc.

And all of these things are forgotten. And what's also forgotten, and as I pointed out earlier, because all of us are distressed with the stock price, is that regardless of this COVID position, this third quarter was the second best third quarter in 12 years. Despite the hurricanes being thrown at us, despite all this COVID being thrown at us, we had much -- we've had much worse starts to the fourth quarter over the last 10, 12 years than we've had before. And yet, those LR2s are in a reasonable position.

So there really is a lot to look forward to.

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

I wonder if the supply side is low because of some shifting views on carbon energy demand and COSCO noting that tanker demand really not turning until June of '21. But -- you can throw your thoughts on that. But how about your thoughts on what scale of storage is still left in the market that needs to keep coming out?

Robert Bugbee -- President

I think, to -- just to take the different positions here, the -- I think, Ken, there is a difference between the crude oil market and the product market. The crude oil market, there is a high degree of storage left on the ships. The crude oil market does not have the same dynamic of inherent demand ton-mile growth as product does. It doesn't have that benefit that the products market has.

Think just straight off here, the opening of these Middle Eastern refineries is positive products, but, you know, at best, neutral. At worst, detrimental for crude oil ton miles. So, I think we, for too long, just talked about tankers, and we need to really divide product tankers away from crude oil tankers. But James, if you'd like to ask the specific -- answer the specific question related to product inventories.

James Doyle -- Senior Financial Analyst

Yes. So, Ken, as you know, or you may recall, in May, there were about 107 million barrels of refined product on the water. Today or October average, we're around 36. So, we've seen a continued decline there.

And the average is probably somewhere around 10 million barrels. So, we're certainly moving in the right direction. And then also, in our presentation, we show what's happened to U.S. Gulf inventories.

And I think that's important as well. It tends to be difficult to get data on other countries and their inventories. But given how much activity comes out of the U.S. Gulf, it was nice to see basically inventories kind of peak in July at 166 million barrels and are down to 143 million.

So, we're seeing land-based storage draws as well. So, I think both those things in the context are certainly encouraging.

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

And then, lastly, Brian, just one financial one. But your G&A declined sequentially from $17 million, $18 million down to $16 million. Is that -- are these internal cost moves you're making? Or is that where the $1 million gain hit on the income statement? Just wondering if there are internal costs you're making as well.

Brian Lee -- Chief Financial Officer

Yeah, costs are down. Obviously, people are not traveling as much. And we're always cognizant of our expenses. So, I don't want to say that we're knocking anything down, but it's also some timings.

Robert Bugbee -- President

But I would add just to Ken's point -- to the point we were talking about with Ken because he wasn't wrong related to old tankers is that if, for example, and I use this not saying -- I'll use Clarksons' daily review today, just simply to have some third party, all of the product tanker markets, you know, on a deadweight-per-deadweight basis or pound-for-pound basis are doing better than the corresponding crude oil markets at this stage. And as we've said, for various reasons, we see the dynamics in the product market being, you know, significantly better than crude going forward, certainly, in the shorter term.

Operator

Your next question comes from Liam Burke from B. Riley. Your line is open.

Liam Burke -- B. Riley FBR -- Analyst

Thank you. Good afternoon. Robert, you touched on the crude storage still being high and the decoupling of demand for crude versus product transport. You laid out the dynamics, including the opening of refineries in Middle East, but how long do you think this decoupling will occur before you really need to see some sort of increase in global crude consumption?

Robert Bugbee -- President

James, why don't -- do you want to answer that one, just starting from where the crude oil inventories are in comparison with the products with what's been happening there?

James Doyle -- Senior Financial Analyst

Sure. Liam, so I think crude floating storage peaked around $290 million, and maybe it's come down to, I don't know, $250 million or so. And the average is in the mid- to high, you know, $150 million to $200 million range, probably $150 million. So there -- it's certainly been slower.

I think it's hard to say exactly, you know, what's happening or how long it takes on the crude side. But if you think about what's happening on the product side is, if you look at the largest product exporters, whether it's the U.S., the Middle East, Russia, right? And they all had access to cheap domestic feedstock. So, I think, you know, as those refineries will sometimes try to import different types of crude, for example, in the U.S., we have light, sweet shale oil. We want to import some heavier sour stuff to balance our yield to create a better yield.

But I would say that those refineries are likely to export products as, you know, gasoline and diesel demand starts to pick up. I mean even jets made -- was up, you know, 73% over the last four months. Obviously, it's the laggard of the bunch. But the product demand has been coming back, you know, month over month.

So, I would expect those refineries to ramp up production over time as demand comes back, but I don't necessarily know how much crude oil they're going to need to bring in. And at the same time, you know, there's also the changes that Lars really mentioned. I mean we tracked a million barrels of close capacity. So, some of these remote places like Australia, New Zealand, Philippines that are going to import crude are now going to be shutting down the refineries over the next few quarters.

So, the crude side, it's a little bit harder to work out. But I'd say, certainly, that this -- what's happening in the refinery space should probably continue kind of going forward.

Robert Bugbee -- President

And we also, just on the supply side, have that sort of slight difference to crude in that – you know, for vessels to be removed from the competitive crude oil tanker market. And normally, this is as a result of scrapping. And normally, that comes as more closer to around when the vessel ages around 20. Whereas in the clean petroleum product market, the removal isn't by way of scrapping.

It's just removed from the competitive clean petroleum product market once the vessel crosses to 16 -- over 15 years old.

Liam Burke -- B. Riley FBR -- Analyst

Great. And Robert, just quickly, going back to Randy's question, you talked about the quarter-to-date fixtures on the LR2s of $18,500 a day being a very, very nice base level to show good operating leverage with any kind of step-up in demand. I don't know if you mentioned it, but the MR rates at $11,000 a day. Do you see that similar base level there to get to the operating -- to achieve operating leverage?

Robert Bugbee -- President

Yeah. We -- again, we look at this in, let's say, in a technical chartering of, you know, trading, what Lars is dealing with every day. So, it's -- he had rational reasons for what is going on. His rational reasons are, look, we're dealing with the residuals, you know, the last sort of period of taking down those marine inventories.

We've dealt -- we're dealing with the refinery turnarounds. We're dealing naturally with the season, and we've had an extraordinarily high level of disturbance in the U.S. Gulf to shipments and refinery exporting ability by way of hurricanes. Yet, we've had, as is shown by the LR2s, a good draw to the Asian markets and the -- you know, the Australasian markets.

So, there's a reasonable demand part there. And what we're getting at the moment is not great in respect for what you'd expect to get over a winter or whatever. But it's not so bad, considering that we can -- he can identify what it is and why those rates are so low. So therefore, it is still tight enough.

It's not as tight as the LR2s, but it's still tight enough to be able to move reasonably promptly from the, you know, level it is now into the high teens. It doesn't need weeks and weeks and weeks to take it there. Just the same as the LR2s can -- could move in a second from 18% into the 20s. That's really the importance of it.

Because if the market was at 4%, 5%, 6%, I mean, you know, I think in -- compared to some of the -- those crude oil markets where the markets really are pretty damn low, where you've got massive oversupply. What he's saying is he said another statement, too, which I think is really valuable for you all to hear, which is the ships are moving. The ships are moving. Meaning, he hasn't got -- these rates are being done with capacity being broadly used.

So, it really is a function of rates. It's not like you've got a whole bunch of ships just lying around doing nothing that first have to be fixed before you can actually start to move on rates. So, what that means, he's telling you, is as soon as you get increased demand, you will get rate increase. You don't need a whole bunch of time to absorb slack capacity.

Liam Burke -- B. Riley FBR -- Analyst

Great. Thank you, Rob. I appreciate it.

Robert Bugbee -- President

Thanks.

Operator

There is no further question at this time. I would now like to turn the call over back to Brian.

Brian Lee -- Chief Financial Officer

OK. Thank you, operator. And thanks, everyone, for joining us today. We look forward to speaking to you soon.

Have a good day. Bye.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Brian Lee -- Chief Financial Officer

Emanuele Lauro -- Chief Executive Officer

Lars Nielsen -- Chief Operating Officer

Robert Bugbee -- President

Omar Nokta -- Clarksons Platou -- Analyst

Greg Lewis -- BTIG -- Analyst

Jon Chappell -- Evercore ISI -- Analyst

Randy Giveans -- Jefferies -- Analyst

Ben Nolan -- Stifel Financial Corp. -- Analyst

James Doyle -- Senior Financial Analyst

Unknown Speaker

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

Liam Burke -- B. Riley FBR -- Analyst

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