TORM shares rebound 6% after record sell-off📈Will Europe increase imports of US oil?

Shares of Danish freight company TORM (TRMDA.DK), which specializes in oil and petroleum products freight, are rebounding more than 6% today after falling more than 50% from their peaks in the last week of July 2024. TORM is one of the largest tanker operators in the world, and the company's business is heavily dependent on demand for oil and refined products.

• The company has benefited from high demand for tankers in 2022 - 2024, as well as sanctions, imposed on Russian oil and tankers, which forced some shipping routes to be changed to longer ones and 'pushed some of Russia's merchant fleet out of the market, forcing companies to sign contracts with Torm and pay more for them, due to 'crowded demand'.
• Recent months have brought a bump in equities, the cause of which is hard to find elsewhere than in the slowdown of the European and Chinese economies (lower expected oil market activity), geopolitical uncertainty, which may turn out to be multidimensional (trade disruptions by a trade war in the Baltic Sea or a decline in North Sea activity, among others). Perhaps the market is trying to price in values today the 'risk' of peace in Ukraine and possible resulting changes in the freight market.
• In third-quarter results, TORM improved revenue and net income by nearly 10% and 5% year-on-year, respectively, with slightly higher rates year-on-year. For the first three quarters of 2024, net income rose nearly 15% to $530 million from $463 million in 2023, with a nearly 17% year-on-year increase in adjusted EBITDA, to more than $600 million. The company indicated that tanker demand in the third quarter rose 12% y/y. The company's ROIC fell to 20.3% from 22.6% in 2023, but remains strong. The price/earnings ratio is less than 3.

Despite the upward annual growth, some of the company's expectations for the full year 2024 were revised downward, due to weaker market conditions in the second half of 2024.

• TCE earnings (Time Charter Equivalent, income ratio): From $1,150 - $1,350 million to $1,110 - $1,160 million.
• EBITDA (operating profit): from $850 - $1,050 million to $810 - $860 million.
• The reasons for the adjustment were slightly lower than expected freight rates and changes in the fleet (new ship purchases and sales).

The company's main shareholder, Oaktree Capital reported an 8% reduction in its position in TORM Plc shares in the third quarter. It carried out the sale of 3.5 million shares, currently the fund still holds approx. 40.5 million, before the Q4 2024 update. TORM shares still accounted for more than 23% of the fund's total portfolio at the end of Q3.

Will Europe increase imports of US oil?

TORM shares' declines coincided with a huge slump in freight rates for so-called dry commodities (dry materials, grains and so on); the Baltic Dry Index fell 52.5% in 2024 and is having its weakest season in 10 years. The market may fear a 'trade war' between the United States and China, and the possible implications of such circumstances, for global trade (possible decline in global trade exchanges). A potential positive catalyst in the short-to-medium term for TORM is possibly higher European oil import from the US through the Atlantic, which Trump is pushing for.

TORM Plc's financial results for the third quarter of the year. Source: Torm

TORM stock price chart (TRMDA.DK, D1 interval)

TORM shares are testing August 2022 levels, although financial results indicated further improvement in the company's business. The recent sell-off was unprecedented and resembles in scale only the panic of 2020.

Source: xStation5

Baltic Dry Index declined from 2500 to 997 points, as investors stress related to future global trade conditions arise, amid possible Trump tariffs and Chinese economy slowdown. Source: Bloomberg Finance L.P.