NASDAQ PXS 1.10 +0.01 +0.92%
Volume: 17,312 May 26, 2017

We at Pyxis believe that our quality vessels, operated safely and well maintained by our managers, lead to attractive chartering arrangements and cost-effective return on capital for the benefit of our shareholders.

Primarily, we address the worldwide market for the marine transportation of refined products, which is driven in turn by the ever-growing demand for transportation fuels, including gasoline, diesel/gas oil, jet/kerosene and naptha. We believe that fundamental population growth combined with increasing per capita incomes and further industrialization will lead to growing demand globally for transportation fuels. In January 2017, the IMF forecasted economic growth worldwide of 3.4% in 2017 and 3.6% in 2018. Recent relatively lower prices for refined products have spurred demand of transportation fuels.

The United States, Europe, India and Middle East are the largest exporters of refined products, accounting for just over half of total exports. Refining capacity, domestic demand and worldwide arbitrage opportunities can influence the movements within these regions. Global shifts in refining capacity and the increase in U.S. crude oil production, led by the rapid expansion of shale based oil, are positives for demand of product tankers. In addition to meeting its growing internal needs, China has become a significant exporter of refined products as its seaborne trade has increased at a compound annual growth rate (“CAGR”) of 12.2% from 2006 to 2016. Changes in refinery locations have also led to further ton-mile demand for product tankers. The emergence of export-oriented, highly efficient mega-refineries located near the well-head, e.g., the Middle East, and the reduction of OECD (namely in Europe, Japan and Australia) refining capacity are examples of factors that influence locations of refineries. Non-OECD refineries now account for over 52.5% of global capacity. Overall, seaborne trade in products has grown at a CAGR of 3.8% between 2006 and 2016, raising to 987 million tons, while ton mile demand over the same period had a CAGR of 5.6%.

Product tankers are differentiated by their coated cargo tanks, predominately epoxy-based paint, which minimize any corrosion from refined petroleum products and facilitate the rapid cleaning of cargo holds. Based on carrying capacity, the worldwide product tanker fleet ranges from small tankers under 10,000 deadweight tons (or dwt) carrying capacity to 120,000 dwt. A main group of vessels transporting the majority of cargoes consists of 2,650 product tankers which range from 10,000 to 80,000 dwt and aggregate 138.7 million dwt as of February 28, 2017. Our area of focus, the Medium Range (or MR2) category, typically 37,000-55,000 dwt, consists around 1,600 tankers, representing 54% of total product tanker carrying capacity within this group. MRs are considered the workhorse and usually operate in the Atlantic and Pacific basins. Customers include major integrated and national oil companies and international commodity trading firms.

The growth in the supply of product tankers is primarily related to new build orders, usually placed at Asian shipyards, and demolition of older tonnage. The placement of orders for new builds is primarily a function of a shipowner's outlook for demand for such vessels (i.e., future charter rates), construction availability at the yard, age of the existing fleet and cost and availability of funding. Product tankers have an expected operating life of 25 years, but certain charterers have lower age restrictions. Industry sources currently estimate over 13% of MR2s are 20 years or older. While product tanker demolition has not been significant due to recent chartering conditions, new restrictive environmental regulations may increase scrapping over the long term. A leading industry consultant estimates fleet growth of MRs on a unit basis will average 2.2% per annum through 2018, exclusive of vessel scrapping and slippage in new build tanker deliveries.

Tanker operations and vessels are significantly regulated by international conventions, such as SOLAS and MARPOL, class requirements, various governmental health, safety and environmental laws and regulations, including OPA and CERLA, IMO regulations and by other jurisdictions. The independent classification societies certify that a vessel has been built and maintained in accordance with established rules and regulations, including periodic inspections and surveys of the vessel. In addition, many charterers have established certain standards to employ vessels carrying refined products guaranteed by strict vetting processes. Consequently, quality vessels and flawless operations are paramount within the product tanker industry.

NASDAQ PXS 1.10 +0.01 +0.92%
Volume: 17,312 May 26, 2017