Scorpio Tankers (STNG) Q3 2021 Earnings Call Transcript

Scorpio Tankers (STNG 1.56%)
Q3 2021 Earnings Call
Nov 11, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Scorpio Tankers Inc. third quarter 2021 conference call. I would now like to turn the call over to Mr. 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' third quarter earnings conference call. On the call with me are Emanuele Lauro, our chief executive officer; Robert Bugbee, president; Cameron Mackey, chief operating officer; Lars Dencker Nielsen, commercial director; James Doyle, senior financial analyst. Earlier today, we issued our third quarter earnings press release, which is available on our website, scorpiotankers.com.

The information discussed on the call is based on information as of today, November 11, 2021 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 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 it's also being recorded for playback purposes.

An archive of the webcast will be available on the investor relations page of our website for approximately 14 days. There are slides available at scorpiotankers.com on the investor relations page under Reports & Presentations. For those asking questions, please limit the number of questions so everyone has a chance. If you have any specific modeling questions, you can contact me later and discuss offline.

Now I'd like to introduce Emanuele.

Emanuele Lauro -- Chief Executive Officer

Thank you, Brian, and welcome to our third quarter results call, everybody. Over the quarter, the market weakness caused by the pandemic has disappointedly continued. We continue to believe that the recovery has been deferred rather than canceled. And the reasons for these convictions are the following, really.

First, world refined products consumption is normalizing. Diesel, gasoline, and naphtha demand are already back at 2019 levels. Jet fuel is lagging a bit behind, but with signs of improvement as we are seeing the U.S. and European travels, for example, now flowing freely since earlier this week.

Asia should follow suit soon with key strategic locations like Singapore where is the travel restrictions. Second, the seaborne ton-mile demand per barrel consumed is higher as a result of an acceleration of refinery shutdowns from the pandemic and new refineries who have opened and come online. We expect ton-mile demand to exceed 2019 levels over the next few months due to refinery closures and seaborne exports of refined products is expected to increase by over 5% in 2022, meaning that we will exceed pre-COVID levels soon. Third reason is that steel values have inflated significantly, and at Scorpio Tankers, we have a very high gearing to this.

Despite cash losses in the quarter, our equity NAV per share may have increased, actually. The asset values on a five-year old MR have increased by 8% year to date. Five-year old LR2s have increased by more than 20% year to date. And both newbuilding prices on MRs and LR2s are year to date up more than 20% .Fourth reason, scrapping has picked up and yards are full, meaning supply will remain constrained for several years.

Product tankers scrapped year to date, 32 MRs, which is the largest number of the MRs scrapped on record. In addition, there have been three LR1s and eight LR2s, which have also been scrapped so far this year. And lastly, with our ECO and scrubber fleet of vessels, we are well positioned in an environment of rising fuel prices and widening spreads between grades of fuel. The spread between the scrubber-suitable HSFO and the LSO is $150 per ton at present, and it is growing.

Because of our investment in scrubbers, this means that at this current $150 per ton spread, the company would generate an additional $70 million in TCE in 2022. So to sum up, our modern spot-exposed fleet remains very well positioned. We have continued to focus on sensible balance sheet management and liquidity management ahead of the normalization of ton-mile demand and ahead of the upswing in rates, which we are finally experiencing now. With that, I would turn the call to Lars, please.

Lars Dencker Nielsen -- Chief Commercial Officer

Thanks, Emanuele. Let me first say that much of the world, excluding China, perhaps, continues to roll back COVID-19 related restrictions. The predominant trend toward reopening is a realization of COVID-19 as an endemic issue, and restricting movement through a lockdown is not a viable long-term solution. Nevertheless, the widespread vaccination rollout continues to be a keystone, solidifying the clean tanker recovery.

During the second quarter 2021 earnings call, we stated that we would only expect a meaningful value at the back end of 2021. This prediction is maintained, and we can now see several green shoots developing in various product tanker segments. The demand picture is improving by the day. In the last call, I stated that the U.S.

have recovered to near pre-COVID demand levels. Still we look to for Latin America demand to recover as a critical market determinant. We can now note that South American mobility indices are up by 33% year on year through October with the vital product import region of Mexico well in recovery mode. Argentina is the first major South American economy to post gasoline demand at pre-pandemic levels.

And overlay that with the closure of the Limetree Bay refinery in the Caribbean and the ton-mile exposure to supply Latin America will be compelling for the products trade. And we have now subsequently seen a material rise in the U.S. Gulf MR market index, with daily earning rates increasing from six -- to between $16,000 and $20,000 per day over the last two weeks, led by the strong Latin American and Mexican demand. This increase, it implies product demand.

Immediately impacts the U.S. product export market and has had immediate positive earnings impact on the MR and LR1 sectors. Furthermore, we can see from the mobility data that vehicle utilization is recovering well within India plus-82% year on year, the Eurozone plus 42% year on year, and of course North America with plus-35% year on year. These mobility trends should continue to see further recovery, but the positive inertia remains and is translating in rates improving daily.

It is evident from the data that the world is in recovery mode, and it is encouraging that global refinery runs have now exceeded 80 million barrels per day for the first time since pre-COVID. We have also already seen a return of eight million barrels in refinery runs since November of last year. The new easing of U.S. travel restrictions will add at least 250,000 barrels a day of crude demand through increased jet fueling consumption.

Whilst jet holds the promise of an imminent, albeit more gradual product recovery, the EIA has reported that U.S. gasoline and distillates consumption has finally returned to the five-year pre-pandemic seasonal averages. Conversely, stocks are drawing at pace. The tail end of refinery maintenance, the backwardated price structure and rising consumption have reduced stocks to the lowest since November of 2017 and with the U.S.

East Coast gasoline inventories at the lowest in nearly seven years. And U.S. jet inventories last week alone posted a 1.7 million barrels stock draw. The market fundamentals hereon in will be supportive for the transatlantic arb opportunities and product markets.

According to the energy aspects, global commercial crude stocks are now at 34 million barrels below October 2019 levels, which constitutes a very material and rapid draw of 600 million barrels from May of 2020. The much discussed global overhang has disappeared and today offers minimal slack in the crude supply chain. Refinery margins remain positive and will underpin higher run rates globally. And as the market is emerging from the seasonal refinery maintenance period, we anticipate a robust end of the fourth quarter with firmer rates across all product segments.

Put simply, in October, refinery maintenance generated a decrease of 8.7 million barrels of refined product per day globally. For November, approximately four million barrels per day capacity comes back on stream and a further two million barrels per day in December. Thus, we anticipate seven million barrels per day global refining capacity will return by the end of January. A substantial return of volume into a market with low stocks, facing a high refinery margin environment where weather delays and increased ton-miles will add to bottlenecks and logistical complexities, this confluence of factors is bullish freight.

Ton-miles have also shown growth signs led by an increase in long-haul trade of naphtha going east and gas -- middle distillates moving west. And add the various refinery closures, they have all had a positive contribution to the ton-mile dynamic over the year, while volumes have steadily increased. And on the back of these increased volumes and long-haul rate nature of the trades, LR2 have now moved substantially by $300,000 to $500,000 on both east and west destination. This again has moved up spot earnings from the mid-teens to $25,000 per day.

Furthermore, we anticipate that Australia, having now closed half of its refining capacity, will see a dramatic increase in import volumes as that region emerges from their extended lockdown and product demand invariably returns. So going back to basics, given that demand is up, stocks are down, refinery utilization continuously north of 90%, supply is inelastic with a benign order book, we expect to see a material upturn in market pricing. The growing pains of logistical chains trying to adapt to a post-COVID world will provide a lot of positive market volatility over the next couple of quarters. The fleet continues to age with 7% of the world fleet over 20, scrapping is accelerating, and so far, over 150 tankers have now left for the breakers.

In addition, as Emanuele said, newbuild prices have increased 20%, 25% this year. And tanker newbuild berth capacity is taken up by containers, bulkers and gas. So we feel well positioned as the largest product tanker owners with a modern ECO fleet to take advantage of the next market cycle. Thank you very much. 

Cameron Mackey -- Chief Operating Officer

Thank you, Lars, very much indeed. I think we'll just go straight to questions, please.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] We have our first question from the line of Omar Nokta with Clarksons Platou Securities. Please go ahead.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Thank you. Hey, guys. Good morning, Lars. Lars gave a pretty, I thought a pretty good overview of what's going on in the market, and you discussed the outlook.

I wanted to maybe dive into that just a little bit deeper, and this is perhaps maybe a bit bigger picture. If there's one thing or if there's a theme that appears to have taken shape here this earnings season, is that pretty much after a bunch of difficult quarters for the tanker market, the third quarter is becoming increasingly viewed, I think, as perhaps the trough. We've seen the low rates in 3Q, but everyone's now showing guidance that suggest 4Q's going to be quite a bit healthier. And obviously spot rates have improved, and you're showing that in your guidance as well.

I wanted to ask, do you feel that the way things are shaping up at the moment, that fourth quarter is sort of potentially the pivot to a stronger market in 2022? And do you agree that indeed 3Q can be viewed as the low point and that this improvement that's currently underway is the one that has legs for a recovery?

Lars Dencker Nielsen -- Chief Commercial Officer

Omar, was that a question for me?

Omar Nokta -- Clarksons Platou Securities -- Analyst

Yes, Lars, please.

Lars Dencker Nielsen -- Chief Commercial Officer

OK. I think Q3 has been for a number of years been kind of considered to be the trough. And there's always been some discussion about, is the market going to pick up by Thanksgiving. Clearly, it has certainly done so way in advance of Thanksgiving.

And there's obviously a lot of different things that are playing into this particular thing, be it the high flat price, be it the lower stocks that we talked about, refining margins being healthy across the board, the run rates now moving up. And we haven't even talked about all of this stuff about the energy substitution effect because of the issues around nat gas and stuff like that or the high pricing on propane, and what that means for people wanting to crack naphtha, etc. There's a lot of things that are playing into this thing exactly at the same time. And it's not really a surprise to me that we have seen kind of, when suddenly all of these things come into play at one go, the markets, they like churn through the position list that have been kind of long and elongated for a while, and then suddenly you're saying, well, oh, there's no further ships available.

We saw that in the U.S. Gulf last week and the week before, but suddenly, boom, it moved up very quickly. We could see all the data. We've been talking about the data for a while, and suddenly says, OK, here we go.

Now the market has moved. And I'm confident to say that it is based on these elements that are playing in. We just got to kind of generate and digest through the positions that have been building up, and then you saw obviously a much more balanced market. And the same thing is going on right now in the Middle East with the distillates moving west.

That's been going on for a while, obviously. There's no substitution to the crude carriers because they're not being delivered from the newbuilding yards. So now it's coming into a more natural environment. Naphtha has been moving very strongly throughout the year, and that really has not changed and it's not going to change according to the reports that we're seeing.

But what we're seeing here is that the different markets are moving now in unison. And that really is important, because suddenly you can start seeing that the utilization levels are increasing past a particular point where volatility really plays in. So rates west to east, as I think I've mentioned in my prepared remarks, they moved up from last Friday to yesterday, I think, by $500,000 in one go. And that's material.

But it's not surprising to us, and I don't think it's surprising to a lot of the bigger players in the market to see this actually playing out. 

Robert Bugbee -- President

Omar, I think that one thing to add here is it's just so significant. It's very difficult to get it across when a market is coming off a very bad market. But what Lars is talking about, that this sort of real drive forward, the gapping of the LR2 rates, how they slowly, slowly creeped up, taking weeks and weeks to get up to 20,000, and then in a matter of two or three trading sessions, just went straight to 25. That is a very, very important thing.

And I think that's also amazingly encouraging that this is happening at least two, 2.5 weeks before Thanksgiving. So it's coming early, very early in the season, on top of what has been in a record warm October. So the market still hasn't had dislocation, it hasn't had cold weather, none of these other things for it. So this is, as Lars saying, is truly supportive of this change and what you are saying, this confidence now that we've moved past the low point, as it were.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Thanks. Thanks, Robert. Yeah. It definitely feels like the -- we're getting the confluence now of the seasonality and the cyclicality coming together.

Robert Bugbee -- President

And it's not -- so it's just happening in our markets. You're seeing a little bit of tightening here in the Aframax market and Suezmax market, too. So that's helpful.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Yes. It's broad-based. And just a follow-up, Lars. You discussed the LR2s.

I think you gave a pretty good rundown of what's going on in the MR market in Latin America. But especially the LR2s have been gapping up, as you say, Robert, to 25. Anything in particular that's been driving that in the past couple of...

Robert Bugbee -- President

Omar, just quickly. It's not really just what we're saying. This is in your report itself this morning. We're already sort of echoing what you have already published this morning.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Yes, yes. Could you give maybe just a flavor of what you've seen? Is it a particular type of cargo? You mentioned naphtha. Or is it just, as you also just said, it's kind of this broad-based churning out of...

Lars Dencker Nielsen -- Chief Commercial Officer

Yes. I'll try and put some color around it. We're seeing LR2s moving from the continent down to West Africa. We're seeing LR2s out of the U.S.

Gulf going east. We have seen obviously the usual stuff out of the U.K. continent and the Mediterranean, which has been the staple trade of light ends naphtha primarily going long-haul into Asia. The TC1 East runs, AG/EAST have picked up again.

There has been some turnarounds in the Middle East as well. They have completed. But what we've also seen which is interesting is a lot of product moving into Australia on big ships as well. So it doesn't take very much to kind of move the whole supply dynamics into kind of the oldest favorite, because you're really stretching out that position as they are now doing a lot of different types of business.

So it's quite clear to me that we're seeing an increase in the diversity of cargo moves.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Great. Very good. Thanks, Lars, and thanks, Robert. 

Operator

Our next question comes from the line of Jon Chappell with Evercore. Please go ahead.

Jon Chappell -- Evercore ISI -- Analyst

Thank you. Good morning, everyone. Good afternoon. Lars, starting with you again, and maybe a bit of a follow-up to Omar.

We've had a bit of fits and starts with this recovery that everyone's been calling for for some time, myself included. And the LR2 momentum recently seems to be giving a bit more confidence that this time it's real. So maybe a two-parter here. One, does the LR2 market tend to be a leading indicator to the rest, given some of the dynamics you just laid out? And two, what could go wrong that causes this to be another head fake? 

Lars Dencker Nielsen -- Chief Commercial Officer

Well, we've had some fits and starts as you said, Jon. Obviously, as the market had moved up the first time around, we maybe were seeing that this was coming. One of the things that we unfortunately were kind of seeing a short-term pain in the past was the immense stock draw that was taking place in pretty much all regions. The second thing we also were seeing, of course, is that the front end pricing was so strong as product was required that the backwardated structure meant that people weren't obviously doing any storage or anything like that.

I think when it comes to the LR2 market, it is obviously a very important market in the product trade, together with the MR markets being the two primary kind of things. They sometimes work in unison, and sometimes they don't work in unison. And right now, we're seeing it in the West, it's moving very strongly. We're seeing it very strongly, having moved up before the LR2s in the Middle East.

Suddenly now the LR2s have come up. And just before LR2s, we saw a very big jump up on the LR1s as the positions in general kind of were trying to get into the sweet spot. I think it's fair to say that when suddenly you have an LR2 market which now is moving across the board in a positive direction, meaning both in the stuff going on in the West that I was talking about, strong activity out of the Middle East, not only with the TC1 East runs, but also now with the distillates moving west. We're seeing also exports coming out of China, going long-haul on the LR2s.

It really, really soaks up a lot of the vessels. This then benefits the LR1s, and they will come afterwards. The MRs tend to operate in kind of a different market environment. There certainly are correlations.

But because of the logistical kind of constraints in terms of size and stuff like that, they tend to sometimes also operate in a different way. But if you look at it over a longer time period, it's quite clear to me that the general trend is upwards across. 

Jon Chappell -- Evercore ISI -- Analyst

OK. That's fair. Robert and maybe Brian, we know the market's all that matters, but with Scorpio specifically, there is this immense focus on liquidity. You laid out pretty well in the presentation the path to $280 million.

And of course, you have a little over $70 million of quarterly debt amortization with limited capex. So listen, based on everything that Lars has laid out for us, there's going to be cash flow generation in the very immediate future. But if there isn't and it's another head fake, what's the plan B on bridging the gap through the debt amortization for next year, including the convert, with the liquidity situation today?

Robert Bugbee -- President

Well, first, I would say that you can see from the announcement, as you said, as well laid out, that you've still got a lot of time here. So for us, it's -- the primary strategy at this moment has been to allow ourselves the liquidity to play for time. That's the primary strategy. And we're seeing the world itself continue to improve in all of its dynamics, whether it's people vaccinated or etc., etc.

And so that's the primary position. You have got -- if that changes, if that forward view changes that the world is fundamentally improving, then you still have various -- you have a lot of levers related to that in the sense that you are paying down amortization. So you can still refinance things along the way that you have got a brand new fleet that, as Emanuele indicated, is desired. The number of ships on order are very low, the time charter market is strong.

So you're with a company that is trading above NAV. There wouldn't be any below NAV substantially. There wouldn't be any issues in that strategy long term to sell assets either. And this is where we are at the moment.

We're not going to act related to some doomsday scenario. You're correct. Lars has said, yes, you may have something terrible happen in the world, but that's an if. And there's no reason for us right now to think that way.

It's best just to carry on doing what we've been doing. I don't know, Brian, if you'd like to add to that.

Brian Lee -- Chief Financial Officer

Again, vessel values have continued to increase here. Refinancing each time has added to liquidity. We have availability to sell or to refinance ships and add liquidity.

Jon Chappell -- Evercore ISI -- Analyst

OK. That's what I wanted to hear. OK. So what I wanted to hear.

Thank you, Brian. Thanks, Robert. Thanks, Lars. 

Operator

Our next question comes from the line of Randy Giveans with Jefferies. Your line is now open.

Randy Giveans -- Jefferies -- Analyst

Howdy, gentlemen? How's it going right around the area? Two questions for me. First, let's just look at the fuel spread. Kind of you mentioned that $150 fuel spread will result in I believe $77 million in cash savings for 2022. Is that just a random number? Or why use $150 million? Is the forward curve there, or is that what your expectation is? And then if so, are you able or willing to hedge some of that spread?

Cameron Mackey -- Chief Operating Officer

There are couple of things, Randy. I'll give it a shot. The $150 million simply because that's where the spread is today. So we conservatively picked that number rather than assuming that it's increase -- that it will increase like we expect.

So that's that. On the hedging, the short answer is we haven't looked at it. It would be arguably a speculative move rather than not. So we are -- we haven't discussed it, to tell you the truth.

So you shouldn't expect us to hedge it.

Randy Giveans -- Jefferies -- Analyst

OK. But your expectation is that $150 million, I think you used the word conservative, is that right?

Cameron Mackey -- Chief Operating Officer

That's right. We see it increasing, but since we are -- given the oil market dynamics. But since we are at 150 now, we picked the 150 that we're experiencing now and projected it for 2022, just to show a number of the impact that that would have in 2022 if the conditions or the assumptions stayed the same.

Randy Giveans -- Jefferies -- Analyst

Got it. No. That's fair.

Robert Bugbee -- President

So maybe we should have used the phrase that we expect the spread to widen, but at present it's only 150. But if it does remain at 150, we will make $77 million or so. So we put a space for that.

Randy Giveans -- Jefferies -- Analyst

No, no. I'm just asking a question. No problem. You can use whatever estimate you want.

All right. Second question. Obviously, no Scorpio call would be complete without multiple questions on your liquidity. So let me follow up with some more.

Looking at the liquidity, you continue to raise liquidity with the sale leasebacks, boosting your cash position for sure. But how does this impact your weighted interest rate and maybe your breakevens now?

Brian Lee -- Chief Financial Officer

Our breakevens have gone down over the past year and a half because interest rates have gone down. So we've got some savings there. But also, you got to look at, again, the reason why we're able to do this is vessel values have gone up. So we're able to do that because of that.

So yes, that has gone up, but overall leverage into a market value hasn't gone up that much. And don't forget, when you repay debt, you're repaying it based upon a vessel's amortization profile of 15 years, zero to 15. So the debt is repaid by the time the vessel gets to 15 years of age. So if you've got a five-year old vessel, you refinance it, you're paying off that debt over 10 years of amortization payments to get to zero.

That's not the term of the loan, but that's the profile you're dealing with. And you still have 10 more years after that of the vessels' lives. So you're paying off 10%, but also only 5% of the vessel life is being depreciated, and the present value of that is not going down by 5% in the first year if you do a discounted cash flow model. So that's where you get these refinancing liquidity events.

Randy Giveans -- Jefferies -- Analyst

Got it. OK. And basically just -- go ahead.

Robert Bugbee -- President

Randy, I think also that -- I think you have to put this in the key things. This is a new fleet. The strategy wouldn't work on a middle aged fleet and would be totally impossible on an older fleet. And we just very strongly believe that this market is improving.

Those are the indicators. That's what the customers are doing. Lars right now is with a whole bunch of customers. We're not -- there's no guessing that this market is improving.

And what we've indicated right now, today is a day when we're actually making positive cash flow right now. And so this can swing very, very fast with the operating leverage that this company has if we just have moderately good.

Randy Giveans -- Jefferies -- Analyst

Sure. Yes. There's definitely a lot of operating and financial leverage in the system here. So I guess just to clarify, the increased liquidity is not coming at a cost, meaning we raised $30 million, $50 million, $60 million in liquidity, but it's at 12%.

Robert Bugbee -- President

Yes, you're correct, and that's a great point. It's not coming at a cost. Obviously, it's not coming -- it hasn't come at an equity cost. And you're definitely correct in pointing out that an actual base raw interest cost is not as if we're paying a distressed rate of interest.

So yes, your point is very well made.

Randy Giveans -- Jefferies -- Analyst

Got it. All right. That's what I wanted to clarify. That's it.

Thank you so much. 

Operator

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

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

Good morning and good afternoon. So just agree with Lars, great update. Noted, I just want to hit on the MR real quick because you noted different markets move different prices. So if newbuild prices are up to the extent you're talking about, I just wanted to understand, MR is more muted in terms of the 4Q guidance and bookings.

Just is there a reason for that disconnect relative to the other groups, as you were kind of highlighting?

Lars Dencker Nielsen -- Chief Commercial Officer

Muted. I'm sorry, Ken, what do you mean by muted?

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

I'm just looking at your 4Q bookings, your rates to date where you've got obviously bigger moves in some of these other groups. You highlighted the LR2s step up, but the 4Q outlook rates seem to be flat with -- flat on your outlook.

Lars Dencker Nielsen -- Chief Commercial Officer

Well, obviously, the guidance given is obviously from the 1st of October. And obviously, as we went through October, it was still very much in the trough. So a lot of bookings were taking place. What we're seeing now over the last couple of weeks is exactly what we anticipated and also what we talked about on the last call, what we expected to happen.

And I believe very much that this is what's going on right now. I think it's really a case in point about what happens in Latin America, because that was the thing that we were missing out on during the last quarter. The U.S. was coming back very nice and we had very good vehicles tons traveled.

We had good inland jet demand, etc., etc. We could see, of course, because of the backwardation, the stocks were still growing. What we are missing out, which is a very big, important part of the whole kind of Atlantic basin picture is what goes on in South America. And during the last quarter, of course, we had lockdowns, severe lockdowns particularly in Argentina, Brazil as well and Mexico.

All of those countries are now back on track. And you look at Chile as well. Chile is now importing more than they have done in the past because of the issues around the hydroelectric issues that they had, and we're seeing this continue through the fourth quarter and the first quarter. So you look at demand balances on these things.

And you know these are the markets where you primarily would use MRs primarily, and to some extent also LR1s, that at some point, it will be a flick of a switch. It suddenly happened two weeks ago, and this market is now growing very strongly and doing exactly as what we anticipated and what the data would kind of suggest. So that's moving well. Then you can then say, well, let's go into another layer of the onion here.

Why has the TC2 market, which is the market moving from the continent over to the States not move? Well, that's also because the stocks in Europe are very much down, and you've got a closed arb, to some extent. But at some point, it's going to force the issue. And we're starting to see the ballast from the -- normally we're up on the AC, not moving over to the continent. They're not moving to the Gulf, They're being absorbed.

You've got a naphtha arb that's opened out of the U.S. Gulf. So you have all of these different things that are happening at the same time, as we had anticipated will. And when it does, it moves.

That's what we're seeing. And that's also exactly what we're seeing when it comes to the market in the Middle East on the LR2s and to some extent also on the LR1s a couple of weeks before. But particularly the LR2s being the case in point, and for us being as big as we are in that market, we can really see that the markets in the West have moved strongly, and they have continued to do so. The markets in the AG have started to move big time.

When those two markets suddenly move in unison, you suddenly have a market, and that's what we're seeing. Then you add on the issues that we talked about with cargos moving out of China, moving long-haul. You don't have the cannibalization of the VLCCs and Suezmax because they're not being delivered in November and December. They're going to be waiting for January and February.

And at that point in time, I would imagine that you're starting to see the OPEC crude increases starting to filter in as those markets are coming back to life. We're seeing the Aframax has moved nicely in the Mediterranean and in the West in general, both on the continent and also in the U.S. Gulf. Suezmaxes, which have been very, let's say, hit by the lockdowns and so on, have started to get a life again and they're now moving up.

And it's not going to take very much for them to start moving as well. And then suddenly, it's across the whole barrel, then we've really got a sense the market. We're doing a lot of volumes right now on condensates out of Australia. That usually is an Aframax market.

But since, as I was saying before, we're moving a lot of products on LR2s into Australia. We're now doing the condensates out of Australia and back into Asia. So we're doing latent voyages both ways, which of course adds to the earning capacity of the LR2.

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

Quick question on that then. So if you get this pricing gap that moves up, is there any move to reopen any shuttered refining capacity in Australia? Just wondering back to the question of does anything impact this rebound. And then, same vein, is there any thoughts on is there a potential impact of a reestablishment of the U.S. crude export ban?

Lars Dencker Nielsen -- Chief Commercial Officer

The last question, I can't answer. That's very much a political question that I think very few people really have a clear answer to. But if that should happen, I don't know what to say really. But the U.S.

refineries, they like very much the heavy crudes that come out of the Middle East and so on. And the light sweets that come out of the U.S. are very much kind of geared for Asian refineries. And I think that there is a price spread there that talks to the logical answer of keeping the product moving.

When it comes to the refinery question in Australia, I think it's not as easy as just saying, well, now you shut the refineries. It looks as if that was a bad idea because the products are going X, Y and Z way to just open it up. I mean, that's a long-term decision. And it's quite clear to me that ton-miles, as we've been talking about the last couple of quarters, continue to increase across the board.

And as the volumes are now increasing as the world is opening up, it's a two-pronged effect. You've got longer haul, more product to move, and you're going to need a lot more ships, and the market is going to move.

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

So great situation. Just to wrap it up then. Any reason that the company didn't buy stock with -- you repaid $450 million of debt, you have $200 million of cash. Obviously Mr.

Bugbee's buying stock. So any reason the company didn't in the quarter?

Robert Bugbee -- President

Yes, absolutely. Because the company has stated consistently that we want to ensure that we've seen these stop starts, we've seen these positions. We're not arrogant enough to act as if -- despite how strong we believe in what's going to happen, we're not going to act as if it's 100%. So we consistently said that until the markets cross over $17,000, $17,500 a day, which is when we suddenly start to really, really make real net cash and build cash, that we aren't going to look at buying back stock and that we're going to continue to focus on maintaining our liquidity until that happens.

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

Appreciate it. Thanks, Rob. Thanks. Appreciate that. 

Robert Bugbee -- President

And I'm just so excited about this U.S. export thing in the product market. Whatever the U.S. does on its policy of exports -- which Lars is correct; we haven't got a clue -- it's not going to change the demand for the products for South America or change the demand for products elsewhere in the world.

And so you could fairly quickly argue for products that it could be a net positive product if that happened, because it'll just create more inefficiency and longer ton mile. Thanks, Ken.

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

Thank you.

Operator

Our next question is from the line of Greg Lewis with BTIG. Please go ahead.

Greg Lewis -- BTIG -- Analyst

Thank you. And good morning, everybody, and good afternoon. And thanks for taking my question. Actually, I only have one, and it's for Brian.

Brian, not to put you on the spot, but when I look at that recent, I guess you did it earlier this month, that new sale and leaseback transaction for the four LR2s and the two Handys, you mentioned increases in advance rates, higher asset prices, realizing that these vessels were probably rolling off lease or financing from a previous financing that was probably one, two, three-plus years ago. Is there any way to kind of think about the increased liquidity you're mentioning, maybe not on a specific vessel level but maybe in terms of percentages?

Brian Lee -- Chief Financial Officer

You have to look at the entire fleet, where it's financed, which I think you can go through our 20-F and see where our vessels were financed and take it from there and try to figure out that way. But it's just going to happen organically here. When vessels come up for near maturities, we're just going to refinance. And given that we have 131 vessels and 30 financings-plus out there, we're going to have that on a regular basis.

I don't think you can look at it as a percentage because...

Greg Lewis -- BTIG -- Analyst

No. I was wondering if the advance -- I was wondering if the amount able to bar on those six ships has gone up or down.

Brian Lee -- Chief Financial Officer

Oh, yes. No, it definitely went up. It came off some of the bank financing and went into sale leaseback. But yes, it went up.

And also, the vessel value went up since we did the initial financing on those a few years ago.

Greg Lewis -- BTIG -- Analyst

Yeah. OK. All right, guys. Thank you very much.

Operator

Next one, we have Magnus Fyhr with H.C. Wainwright. Please go ahead.

Magnus Fyhr -- H.C. Wainwright -- Analyst

Yeah. Hi. Good morning. I just had two questions.

First, on the -- the rates have been really weak over the last year. Your clients have been used to getting very attractive rates. Rates have moved up here in the last few weeks. Has that crossed your clients' price, or do you see them preparing maybe to go longer on time charters?

Lars Dencker Nielsen -- Chief Commercial Officer

That's very clear to me that we are seeing a lot of our clients wanting to take long-term charter coverage now. There are people that are looking at one, two, three. We have people looking at wanting to do five years. They're obviously seeing that as we're moving out of the trough of the market, that now might be the time to go in and get some cover.

So that for sure is taking place and is accelerating at the moment. And rates that have been concluded in the market, there's testament, too, that they're willing to pay a lot higher than what the market had been printing on the spot to what they're willing to pay for the future. So as a leading indicator, it's clear to me that our clients, and it's across the board, all believe that the market is on a rebound.

Magnus Fyhr -- H.C. Wainwright -- Analyst

OK. And maybe rates are too low for you guys, but is there a level where you guys -- or you don't need to say the level -- but would you entertain time charters now? Or is this the best time to do time charter, because it always seems like either the charter is too high or too low or...

Robert Bugbee -- President

Magnus, this is -- there's no supply, hardly any supply on oil. This is a record, record supply low that is there. So we're all focused on the short term and will this change and is this the bottom, etc., etc. But once -- if we get this confirmation over these next few weeks, really, it's going to be a few weeks, three, four months.

We're into a position where it's very difficult then to provide a supply response in the product market. We're all focused on the demand, is it coming back, are inventories being drawn down, when will the rates improve? But if we start to move and continue in the direction that we're going, then the debate is going to swiftly turn, whether it's the customers, whether it's yourselves as analysts or investors on, wow, it's really difficult to have a supply response to this and crush this improvement short term. So therefore, we are going to be set up for multi-year strong markets and strong returns. This is definitely, when we're only just seeing the turn off the bottom, this is definitely not the time where Scorpio Tankers, after going through all the pain together with our shareholders, should start to avidly charter out vessels.

Magnus Fyhr -- H.C. Wainwright -- Analyst

Great. Thanks for that flavor, Robert. Just one more question. You've been playing defense as you said for the last year, and most of the questions have been focused on the liquidity going forward.

With the market improving, maybe it's a little too early to start playing offense, but you have a buyback in place, you've been paying down debt. Are you happy with your fleet now? You had a big fleet of ECO tankers. One of your competitors announced a merger today, expanding into the chemical market. So just curious if you feel like you're well positioned or if you feel you have the right place over the next two, three years?

Robert Bugbee -- President

We have the largest product fleet in the world by dead weight. Our newest public tanker product, tanker fleet in the world. And we've put in the various modifications for any environmental regulation changes, and we've put in scrubbers in all the vessels that we've -- we purchase vessels now that we believe that do it. We've had majority of our dry dockings done in this weak market.

So we're set. We don't have any capex. And what we hopefully able to do is to set our stall to really provide the returns to the shareholders for this company that is -- there is no other company that I look at that is in tanker land that has the leverage that this does to an improving market. So there's certainly no need to go out and buy one or two ships to improve that.

We have tremendous earnings per share, cash flow per share leverage to an improving market. So I would say we're confident that we're extremely well positioned right now. It's not as if with the -- I would just leave it at that. I can understand why others feel the requirement to do things, but we just don't feel any urgency or necessity to change the fleet we have.

Magnus Fyhr -- H.C. Wainwright -- Analyst

Great. That's what I wanted to hear. I appreciate you answering my questions. Thank you.

Operator

Our next question is from the line of Liam Burke with B. Riley. Your line is now open. 

Liam Burke -- B. Riley Financial -- Analyst

Thank you. Good morning. Robert, I just want to ask a question again, and I apologize. I'm taking the other side of the argument that your cash flow is pretty respectable in low rate environments as the leverage kicks in. You have the assets in place, declining capex, accelerating cash flow.

The priority after debt service I presume is to return cash to shareholders because you're happy with your asset base. How would you look at returning cash to shareholders?

Robert Bugbee -- President

Well, I think, again, we've been fairly consistent that we first have to get ourselves into that position. And that's what we're focused on doing. We're focused on -- we may indeed find that we're already there. And that's the high probability now is that the markets are going to create at an average above the 17 and 17.5 position.

Then we will look at it, and we will take it in stages. When we are there, we will then decide what is the optimum thing to do. Otherwise, we're just going to stay with it. We're not going to count the chickens before they hatch.

Liam Burke -- B. Riley Financial -- Analyst

Fair enough. And just on the market side, the refinery closures have been going on since late last year through now. Has that finally run its course, or do you see an additional bump from the realignment of global refinery?

James Doyle -- Senior Financial Analyst

Hey, Liam.

Liam Burke -- B. Riley Financial -- Analyst

Hey, James.

James Doyle -- Senior Financial Analyst

So I think we're definitely seeing it. I mean, Lars has mentioned the increased volumes to places like Australia, but I also think there's going to be a second bump. As product demand picks up and seaborne export does as well, that's going to magnify or accelerate what those closures have done. And I think we'll see it throughout the end of this year and through next year.

As these refineries close, most have, but there's still a few left, and they're going to need to replace that lost production.

Liam Burke -- B. Riley Financial -- Analyst

Great. Thank you very much. 

Operator

There are no further questions at this time. Mr. Emanuele Lauro, please continue.

Cameron Mackey -- Chief Operating Officer

We have no further remarks. Thanks very much for attending the call today, and we look forward to speaking soon. Thanks very much.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Brian Lee -- Chief Financial Officer

Emanuele Lauro -- Chief Executive Officer

Lars Dencker Nielsen -- Chief Commercial Officer

Cameron Mackey -- Chief Operating Officer

Omar Nokta -- Clarksons Platou Securities -- Analyst

Robert Bugbee -- President

Jon Chappell -- Evercore ISI -- Analyst

Randy Giveans -- Jefferies -- Analyst

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

Greg Lewis -- BTIG -- Analyst

Magnus Fyhr -- H.C. Wainwright -- Analyst

Liam Burke -- B. Riley Financial -- Analyst

James Doyle -- Senior Financial Analyst

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