Star Bulk Sees Gains From Scrubber Spread Hedging

The profitability of scrubbers has dropped sharply this year. Image Credit: Ship & Bunker

Dry bulk firm Star Bulk, one of the shipping companies most committed to scrubbers in the run-up to IMO 2020, has set out the details of a hedging programme that has gone some way to protect the company from the declining profitability of the systems this year.

The company has now completed its scrubber installation programme despite the delays caused by COVID-19 at shipyards, with the emissions-cleaning equipment fitted to 114 of its 116 ships at a cost of $212 million.

The systems will "serve to comply with environmental regulations and enhance our commercial performance in the future," CEO Petros Pappas said in an earnings release this week.

This year's crude price collapse in the wake of the pandemic and tantrums at OPEC prompted a sharp narrowing of the spread between high sulfur fuel oil (HSFO) and very low sulfur fuel oil (VLSFO) -- a key measure of the profitability of investments in scrubbers -- catching out many companies that had previously been enthusiastic about the technology.

Scrubber Postponements

Shipping firms including Frontline, Scorpio Bulkers, Scorpio Tankers and DHT Holdings have postponed some scrubber installations as the price spread at Rotterdam dropped from $298/mt at the end of 2019 to as little as $26.50/mt in April, according to Ship & Bunker pricing.

Star Bulk has managed to avoid some of that price impact on its earnings through hedging, according to its earnings release.

The company has secured 151,000 mt of its HSFO requirements for 2020 using prices in Singapore at an average discount to VLSFO of $214/mt.

Ship & Bunker pricing shows the spread in the spot market at Singapore has averaged around $147/mt so far this year, dropping from $199/mt in the first quarter to just $67/mt in the second quarter so far.

The company has already realised 28,000 mt of its hedged requirements for this year at an average discount of $236/mt, leaving a further 123,000 mt for the rest of the year at an average spread of $209/mt.

Star Bulk has also secured 24,000 mt of its HSFO requirements for next year at a discount of $106/mt, it said.

The company's fuel consumption has declined this year as a result of slowing its vessels down, and is currently heading for 720,000 mt in 2020 from around 1 million mt previously, it said in an earnings presentation.