Nov 8, 2018
Operator
Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Third Quarter 2018 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call.
That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the Company's website, www.gencoshipping.com.
We will conduct a question-and-answer session after the opening remarks, instructions will follow at that time. A replay of the conference will be accessible anytime during the next two weeks by dialing toll free 888-203-1112 or area code 719-457-0820 and entering the pass code 8797872.
At this time, I will turn the conference over to the Company. Please go ahead.
Unidentified Company Representative
Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations.
For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday. The materials relating to this call posted on the Company's website and the Company's filings with the Securities and Exchange Commission, including without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2017, and the Company's report subsequently filed with the SEC.
At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.
John Wobensmith
Good morning everyone. Welcome to Genco's third quarter 2018 conference call.
I will begin today's call by reviewing our third quarter highlights. We will then discuss our financial results for the quarter and the industries current fundamentals and then open up the call up for questions.
Turning to Slide 5, we review Genco's third quarter highlights. During the third quarter, we made significant progress implementing our growth strategy, further strengthening our earnings power and position for capitalizing on the recovering drybulk market.
Importantly, we completed the acquisition of six high specification fuel efficient Capesize and Ultramax vessels and an attractive point in the cycle given the earnings environment for both sectors. Specifically in July, we took delivery of the Genco Weatherley, a 2014 built Ultramax Vessel.
In August, we took delivery of two 2015 Capesize vessels, the Genco Endeavor and the Genco Resolute and in September, we took delivery of the Genco Columbia, a 2016 Ultramax vessel as well as two 2016 built Capesize vessels, the Genco Defender and the Genco Liberty. Furthermore, as part of our fleet renewal program, we have agreed to sell five vessels to date of which three vessels have been delivered to their respective buyers.
These include two 1990s built vessels, the Genco Surprise and the Genco Progress, which delivered to buyers during the third quarter and the Genco Cavalier, a 2007 built Supermax vessel which delivered to buyers during the fourth quarter. The two remaining vessels agreed to be sold to date; the Genco Explorer and the Genco Muse are expected to be delivered later in the fourth quarter.
As a result of these sales, Genco expects to save anticipated drydocking and ballast water treatment system installation cost of approximately $6.1 million. As part of our previously announced fleet renewal plan, which includes an additional seven Supermax and three Panamax vessels, we plan to redeploy the net sales proceeds from these transactions towards modern fuel efficient vessels.
During the quarter, we also continued to access capital on favorable terms in support of our growth strategy. In August, we closed a previously announced five-year senior secured credit facility for an aggregate amount of $108 million to partially finance the purchase price of the six modern vessels that I mentioned a moment ago.
In October, we announced Genco's comprehensive fleet plan ahead of IMO 2020, which was based on an extensive evaluation and analysis aimed at reducing our environmental footprint, maximizing shareholder return and lowering fuel cost in an evolving marine fuel environment. Moving on to our financials for the third quarter, we continue to generate profitable results as we drew upon our sizeable and leading drybulk platform to take advantage of the developing recovery in the drybulk market.
For the third quarter we recorded net income of $5.7 million or basic and diluted earnings per share of $0.14. Excluding the $1.5 million gain on the sale of vessels, we recorded adjusted net income of $4.2 million or adjusted basic and diluted earnings per share of $0.10.
On Slide 6, we highlight our progress enhancing our fleet profile, earnings power and balance sheet strength. Following the delivery of all six vessels we agreed to acquire, Genco's major bulk fleet is comprised of 22 vessels, transporting commodities such as iron ore and coal with this Capesize and Panamax vessel.
In addition to the major bulk commodities, Genco continues to maintain direct exposure to minor bulks with 39 Ultramax to Handysize vessels, transporting materials such as grain, oxide, fertilizer, cement among other various materials. Our success growing and renewing the fleet has enabled the company to reduce its average age by more than one year and increase the overall carrying capacity to 5.3 million deadweight tons.
On Slide7, we discuss our comprehensive fleet plan from IMO 2020 in more detail. As I mentioned earlier we're implementing a portfolio approach ahead of the IMO 2020 regulations focused on installing scrubbers on our Capesize vessels and consuming compliant fuel in our minor bulks.
We are maintaining options of 15 minor bulks that sourced to provide flexibility as the marine fuel environment evolves. We also plan to continue to execute our fleet renewal program.
Lastly we are continuing to outfit our fleet with digitalized performance monitoring systems on our vessels to obtain real time speed and consumption data on our fleet to ensure we optimize our vessels' fuel consumption. We believe the greatest benefits of adding scrubbers will likely occur in the early stage of compliance and we anticipate scrubber installation to occur during 2019.
Based on a shorter payback period and the lower risk profile, we plan to install scrubbers on 17 Capesize vessels. This is due to the long haul nature of the Capesize trade routes and the ability to maximize sailing days and scrubber utilization as well as higher fuel consumption and the greater degree of certainty of high sulfur fuel oil availability at major ports.
In terms of the balance of the fleet, we expect it to consume complaint low sulfur fuel beginning in 2020, which means immediate compliance when new environmental regulations come into effect and no upfront CapEx. Finally, as part of our portfolio approach, we'll continue to execute our fleet renewal program aimed replacing older, less fuel efficient vessels with modern, high specification fuel efficient vessels to reduce emissions, consistent with our focus on improving our fleet-wide fuel efficiency.
On Slide 8, we outline the major drivers for the drybulk market for the second half of 2018 and into next year 2019. The market continues to be led by the fundamentals of the iron ore trade and steel production on the major bulks and the strengthening global economy for the minor bulks, together with a low net fleet growth environment helping to improve the overall supply and demand balance.
On Page 9, we highlight our barbell approach to fleet composition which provides direct exposure to both major and minor bulk commodities and enables our fleets cargos carry to closely narrow those a global commodity trade flow. We believe that the balanced design of our fleet composition is necessary to capture the potential upside of a recovering drybulk market.
While 36% of our fleet remains employed in the minor bulk trades which has historically provided relative earning stability and additional 64% of our fleet provides the operating leverage inherent with the major bulk trades. Turning to Slide 10, we have outlined our leading market position.
We remain well positioned to drive revenue growth, further increase margins and outperform benchmarks as we continue to incorporate voyage charters and direct cargo listings into our fleet deployment mix. We expect our active approach to revenue generation and our ability to leverage our in-house relationships and commercial expertise to enable Genco to continue to enter into business directly with leading cargo customers as we continue to provide a full service logistics solution.
With that said during the third quarter of 2018 our time charter equivalent performance improved by 27% compared to the same period of 2017. During the third quarter we repositioned select Capesize and minor bulk vessels to regions which we believe will be ideal locations given our market expectations.
We believe that these decisions will enhance Genco's commercial platform through a further expansion of our customer base and geographical presence. These efforts have helped lead to higher time charter equivalent rates fixed so far in the fourth quarter as we have 62% of the fleet fixed at $13,367 per day representing a 25% increase over the third quarter of 2018.
We believe the time charter equivalent rate is an important barometer of measuring a company's revenue generation capabilities, but also believe it is important to view TCE performance alongside G&A and operating expenses on a per vessel per day basis to have a picture of the for the full company. Notably, Genco's platform provides the key differentiator in achieving these objectives and that while we register strong time charter equivalent performance, we also achieve that performance under an efficient cost structure which has led to wider margins and a better return on capital.
I will now turn the call over to Apostolos Zafolias, our chief financial officer to discuss our financials.
Apostolos Zafolias
Thank you, John. Turning to Slide 12, our financial results for the three and nine months ended September 30, 2018 and 2017 are presented.
For the third quarter and nine months ended September 30, 2018, the company generated revenues of $92.3 million and $255.3 million respectively. This compares with revenues for the third quarter of 2017 and the nine months ended December 30, 2017, a $51.2 million and a $134.8 million respectively.
The increase in revenues was primarily due to the employment of vessels on spot market mortgage charters and higher spot market rates achieved by the majority of our vessels. For the third quarter of 2018, the company reported net income of $5.7 million or basic and diluted earnings per share of $0.14, marking our fourth consecutive quarter of net income or adjusted net income when excluding extraordinary items dating back to the fourth quarter of 2017.
Comparatively during the third quarter of 2017 the company recorded a net loss of $31.2 million or $0.90 basic and diluted loss per share. For the first nine months of 2018, the company recorded a net loss of $51.2 million or $1.37 basic and diluted loss per share.
Net loss for the nine months ended September 30, 2018, includes non-cash vessel impairment charges of $56.6 million and net loss for the nine months ended also includes a loss on debt extinguishment in the amount of $4.5 million as well as a gain from the sale of vessels totaling $1.5 million. Turning to Slide 13, we present key balance sheet items as of September 30, 2018.
Our cash position including restricted cash was $166 million. Our total assets were $1.6 billion, which consists primarily of the vessels in our fleet and cash.
Our total debt outstanding growth of $17.2 million of unamortized debt issuance costs and inclusive of the current portion of long-term debt was $568 million as of September 30, 2018. Moving to Slide 14, our utilization rate was 98.5% for the third quarter of 2018.
Our TCE for the third quarter was $10,696 per vessel per day, which compares to $8,448 per vessel per day recorded in the same period of last year. The increase in TCE was primarily due to higher rates achieved by the majority of the vessels in our fleet during the third quarter of 2018 versus the third quarter of 2017.
Daily vessel operating expenses were $4,434 per vessel per day for the third quarter of 2018, below our budget of $4,440.00 per day and below the prior year period of $4553 per vessel per day. The decrease in DVOE was predominantly due to lower expenses related to maintenance, dry docking, spare parts and stores and it was partially offset by higher expenses related to growing.
Turning to Slide 15, as John briefly mentioned, we closed on a five year $108 million senior security credit facility with favorable terms in August following the $460 credit facility that we closed in the second quarter of this year. These facilities have enabled us to simplify our capital structure while providing Genco added flexibility in regard to vessel acquisitions, additional indebtedness and potential dividends.
During the quarter we drew down the entire $108 million to partially finance the purchase price for the six high specification fuel efficient Capesize and Ultramax vessels that we acquired. Importantly, the combination of these two facilities has also lowered our weighted average cost of debt by a 100 basis points as compared to our debt structure in 2017.
Turning to Slide 16, we provide select balance sheet items reflecting our strong balance sheet and liquidity position. On Slide 17 we outline our fourth quarter estimated cash breakeven range, which reflect the new credit facility structures.
We anticipate Genco's cash breakeven rate to be approximately $10,129 per vessel per day for the fourth quarter of 2018. We note that quarterly debt amortization under both our new credit facilities is to commence in December 31, 2018.
We've also provided further detail on these breakeven rates in the appendix of our presentation for your reference. We expect incur capital expenditures for installation of ballast water treatment systems and scrubbers during 2019 as it was described in our latest 10-Q.
I'll now turn the call Peter Allen, our Drybulk Market Analyst to discuss the industry fundamentals.
Peter Allen
Thank you, Apostolos. I'll begin with Slide 19 which represents daily spot rates for the sub-indices of the Baltic Dry Index.
During the third quarter the drybulk market continued to rise adding to gains from the previous quarters. The BDI rose by 28% as compared to the second quarter and 41% on a year-over-year basis.
Furthermore the BDI's for the first nine months of 2018 recorded its highest average since 2011. This has primarily been driven by Capesize vessels which have average nearly $17,000 in the year-to-date and over $22,000 during Q3, the highest level for a third quarter since 2010.
Turning to Slide 20, we outline some key markets developments. We note that long-term supply side fundamentals for the drybulk market remained favorable, while 2018 has been one of the strongest years in terms of BDI performance in quite some time, new building ordering has been relatively subdued in the year-to-date.
As a result this has kept the order book in check and it's provided more visibility regarding vessel supply growth over the next 18 to 24 months. Low levels of net fleet expansion in the foreseeable future provide a low hurdle for demand growth we have to exceed in order to lead to a tighter market.
Specifically, during 2018 we believe that the improved supply and demand balance has been evident through the freight rate impact of a large amount of fixture volume. This has been on display most notably through Brazilian iron ore exports this year.
During the first quarter exports declined by 8% year-over-year then subsequently the next two quarters have both seen year-over-year increases of 8% to more than offset the softer Q1. The end result has been higher volatility in the Capesize sector a sign of which we believe is an indicator of a more balanced market that reacts to demand fluctuations.
More recently we have seen a pullback in the Capesize market after trading in the $17,000 to $20,000 range for much of the last two months. We believe this recent pullback is attributable to the combination of two key factors.
A train derailment within the supply chain of a major Australian miner BHP Billiton impacting iron ore transportation to its export terminals as well as an increased tonnage count in the Atlantic market which has absorbed a portion of the incremental iron ore that Valley is producing. Important to note is that Valley has reiterated its 2018 production guidance of 390 million tons, which implies a record 106 million tons of iron ore to be produced during the October to December period.
The company also anticipates an additional 10 million tons of iron ore to be produced next year while Anglo American's Minas Rio mine is scheduled to come back on line shortly, which would add another 15 million tons of high quality iron ore to the market in 2019. Turning to Slide 21, strong global growth in steel production has propelled demand for key drybulk commodities worldwide.
In particular steel output in both China and India through the first nine months of 2018 has risen by over 6% as the latter appears poised to overtake Japan as the world's second largest steel producer. Additionally, the global coal trade has also been strong in the year-to-date.
China's coal imports have risen by over 10% through September year-over-year primarily led by thermal coal shipments. With regard to India, increased coal demand has depleted coal power plant stockpiles while Coal India continues to miss production targets.
Turning to Page 22, we point out some key drivers of the minor bulk commodity trade. Led by strong a South American grain season, Brazilian soybean exports to China gained significant market share during the first nine months of the year having risen by 15% year-over-year.
Commencing in September is the beginning of North American grain season, the latest data out of the US shows that through the first eight weeks of the season the US soybean exports have totaled 7.5 million tons, a decline of 39% year-over-year. This is certainly a slow start to the season, but also highlights how the market is waiting for direction on governmental policy.
As the trade dispute between the US and China persists, we anticipate one impact will be a redirection of cargo flows of US soybeans. To that affect, we are seeing more shipments from the US to Mexico, Spain and Argentina among other countries with fewer volumes to China at this point.
As we head into next year early indications are for another record Brazilian soybean crop exports of which could ramp up in early February. With added Brazilian soybean shipments, the trend could materialize in which the Brazilian peak season is stronger and extended over a longer period of time, helping to soften the impact of potentially lower US soybean exports season.
Lastly, on the minor bulks, we continue to see added shipments of bauxite from West Africa to China, as Guinea is now China's largest supplier. Growth projects remain in the pipeline scheduled for a mid to end of 2019 ramp up which could further boost demand for this trade.
On Slide 23, we outline current supply side fundamentals. In terms of vessel supply and net fleet growth in the year-to-date is 2.5%, new building deliveries are down by 34% year-over-year through the first nine months of 2018, while scrapping has been the slowest since 2007, given improved market conditions.
We continue to believe that new building deliveries will slow into year-end, as vessels slip into the next full-year. The order book as a percentage of the fleet is approximately 10% which compares the 7% of the current on the water drybulk fleet that is greater than or equal to 20 years old.
As a result, potential scrapping of this older tonnage could help to offset much of the scheduled order book keeping net fleet growth at the current low levels. We also point out that it remains to be seen how much of the order book will actually deliver considering that the slippage rate this year is running at over 20%.
There generally remains good visibility on the supply side in terms of new building deliveries over the next 18 to 24 months, which could lead to fleet expansion continuing at multi-decade lows and be a positive catalyst for the drybulk market going forward. This concludes our presentation, and we would now be happy to take your questions.
Operator
[Operator Instructions] We'll take our first question from Jon Chappell of Evercore ISI.
Jon Chappell
Thank you. First one John, pretty simple done a lot on the acquisition front but there is still a pretty big swath of older ships that is kind of unpaid for sale in only five so far this year.
Is that still a plan to kind of monetize some of the noncore older assets or are you with the thought process that at this point in the cycle, maybe just hold on and generate cash on those ships?
John Wobensmith
Now the fleet renewal program is still alive and well. I think the three Panamax's, the three 99s we're very focused on right now, so I expect to have those done before the end of the year.
And then we have the 53s and again we're working on that but that's all very active right now.
Jon Chappell
Got it and then you're also pretty consistent with the commentary regarding use of those proceeds to continue to renew the fleet which makes a lot of sense. But things have kind of changed a bit out of your control, one with the share price so.
At a 50% discount to NAV based on our numbers would you consider potentially using the proceeds from those to buy back stock? And I understand there's going to be maybe some commentary about liquidity but at the end of the day, I don't think there's a better ship out there than your own fleet $0.50 on the dollar, so just any thoughts around that?
John Wobensmith
So were I would say we're committed to the fleet renewal program in terms of redeploying the proceeds that from - from the older ships that we're selling, but I think you also have to keep in mind, we have a pretty sizable cash balance and a low leverage profile, so I think that gives us flexibility to look at a lot of things. We have management has begun the process speaking to the board, the no decision has been made on - on share buybacks is as well as a return of capital in the form of dividends, which would start to do after December 31 under a bank facility.
So as I said is no decisions been made on it that management is actively discussing those things and it's all about with the board.
Jon Chappell
Okay. Final one for Peter, if I may August much stronger than we anticipated November probably much weaker than we anticipated with the cape, so maybe speak to is there a little bit of borrowing from Peter to PayPal maybe some accelerated shipments in the third quarter ahead of potential tariff impact.
And then the second part of it is, with this train derailment with all the ships that have kind of shifted the Atlantic basin, Valley still confirming there - there year on target. I mean is this kind of like a coiled spring where when I think kind of comes back online in the next week or two, there could be big kind of makeup into year-end on the Capesize market?
Peter Allen
Sure. So in going after your first question there, so when we look at Q3 Cape rate they were averaging over $22,000 a day, and when you look at 2017, for example that was essentially the average of capes, so that just goes to highlight the strength of the Q3 market.
When we're looking at Q4 and putting this year in perspective or about $17,000 a day for the year and about 18.5 half right now in Q4. So generally speaking still relatively strong market obviously there's been that pullback of late, BHP is close to 20% market share beyond our own market.
So when there's a hiccup there, that's going to have an impact, and that's impacting the specific markets on a short term basis and then also we have another short term situation in Brazil, where there's just an incremental amount of tonnage. So overall you get your kind of getting it from both hands, unfortunately and we just think it's more short term and timing than a structural shifts.
Jon Chappell
Okay. Does BHP have the ability to kind of makeup for the loss volumes as they work through this derailment or is it you just kind of losing those lines in this week and then it just back to the normal run rate going forward.
John Wobensmith
Well at this stage, they're going to be drawing down some stocks at the port. I don't think that's necessarily going to - going to make up for everything, but from what I've seen they haven't changed their production guidance and their shipment guidance.
So maybe get a little bit of a spillover into early January, but like I said there are a big part of the market so when you - when you take their annual production and put it in the per week basis about five million tons a week. So they're big part of what's - what's moving the Australian trade.
Peter Allen
Yeah Jon, I think the CEO of BHP this morning came on and said they were committed to fulfilling all their contract obligations even with the derailment.
Jon Chappell
Okay. I appreciate it.
Thanks, Peter, Thanks, John.
Peter Allen
Thanks.
Operator
Our next our next question is from Magnus Fyhr of Seaport Global.
Magnus Fyhr
Yeah good morning, just a question on the volatility in the Capesize market, does that mean a provide any opportunity is on your own or operator model to maybe charter in ships or how do you look at the current weakness maybe to capitalize on that opportunity?
John Wobensmith
So I think that's more focused on the minor bulk side, and the reason I say that Magnus is because the arbitrage trades we're doing we would be booking forward cargoes and now is not the time to be booking for cargoes, what you won't see is doing is taking in time tonnage naked with that without a contract behind it, we just we don't like that that risk profile though I do agree with you where particular where the indexes today it seems way overdone I think that it is very driven by sentiment as you know in this case size market. And I think as Pete said, we view this more as short term and not a structural demand issue, I think one very important thing to keep in mind is the price of iron ore continues to move up not just on the higher iron ore in the higher quality but also on the 58% and the 62%.
So that that tells me that the underlying demand situation is there, I think as again as Peter said I think it's a short term phenomenon with the BHP disruption, which immediately hit in Australian freight rates and spilled over into the Atlantic as well as an oversupply short term oversupply situation in the Atlantic.
Magnus Fyhr
Okay. And I guess the other question kind of related to OpEx I mean, I know you said you were in the market to sell these'99-built Panamax vessels.
The OpEx came down quite a bit there. Is that kind of related to just keeping the expenses low in those ships or?
John Wobensmith
Yeah, I think that's part of it. We also sold the Genco Cavalier, the Genco - well, the Genco [indiscernible] yet but that is sold.
So as we sell these older ships that require higher maintenance expenses and CapEx, that's been leading to that.
Magnus Fyhr
Alright and then just one final question you may not be able to answer this, but how does a train run away from a conductor?
John Wobensmith
I think Rio who has these automated trains, they are in a better situation, right.
Magnus Fyhr
Exactly, alright, thanks.
John Wobensmith
Yeah.
Operator
Our next question is from Randy Gibbons of Jefferies.
Randy Gibbons
Thanks, operator. Good morning guys.
John Wobensmith
Good morning, Randy.
Randy Gibbons
Yeah, good to see the continued progress and the vessel acquisitions and sales and I'm looking at your scrubber orders. Obviously before these orders were announced, you kind of questioned the HS for availability [ph] some of the degree duration to spread, maybe concerns about future regulations.
So are these issues no longer issues in your opinion? And then secondly, is the fuel spread the only determining factor regarding whether you do or do not install scrubbers on some of your smaller vessels?
John Wobensmith
So, first of all, we made the hard and fast decision to install scrubbers on the 17 Capes, right, so that has been happening. We made that announcement a little while ago.
So the question for us is 'do we exercise on the 15 option ships for the smaller ones?' We are still working through that.
I still think in our mind it's not necessarily a spread or duration issue. It has much more to do with fuel availability in the smaller ports and how much deviation may or may not occur.
So I don't expect this to go on for a long period of time in the sense that I believe we will be making a firm decision very, very early next year if not before. But it is something we are still working through.
I think we are very confident on the spread for the first year and we've been modeling all of our payback periods based on only $200 spread, which I believe is conservative, particularly for the first year, but again we do want to make sure that we are comfortable with availability of smaller ports that fit our trading patterns for the smaller ships. But on the Capes, that is firm.
That is happening and we think it makes a lot of sense on those ships. And if you think about, you really - you are sort of adding probably $4000 to $5000 a day on earnings at only a $200 spread between high sulfur fuel and low sulfur fuel oil.
And the other thing to keep in mind, which I think is important, those 17 Capesize ships, they make up a little more than 40% of our total fuel costs. So you get quite a bit of bang for your buck on doing all the Capes.
Randy Gibbons
Okay. The economics definitely makes sense.
And then for your 4Q quarter data update, obviously your peers, the smaller asset classes had relatively outperformed the Capes at least recently. So what has been the cause of that firm Supermax, Ultramax rate and do you see rates continuing to rise in the coming months?
John Wobensmith
Yeah. Look, first of all, the minor bulks in the fourth quarter have really been performing well based on its strength in the Atlantic.
We've had obviously some US soybean shipments though not a lot go into China, but there has been a lot of soybean coming out of Brazil. There has been a lot of wheat that has been and corn coming out of the Med region and then I think as Pete Allen had mentioned earlier in his comments, there has been a lot of coal that has been coming off US East Coast and going to India.
So that has been a firm market. It's something that we position for with the minor bulk fleet.
In terms of the Capes, I think it's important to keep in mind this low - the volatility which has pushed down rates is a very short term phenomenon and we've been having some very strong pictures to date in the Capesize market and I think again I kind of look at this as short-term and I still think that there is a good possibility of this market recovering before we get to the end of the year.
Randy Gibbons
Sure. It makes sense.
Okay, thanks again.
John Wobensmith
Okay, thanks, Randy.
Operator
We'll take our next question from Amit Malhotra of Deutsche Bank.
Unidentified Analyst
Yeah, this is Chris on for Amit.
John Wobensmith
Good morning.
Unidentified Analyst
I guess my first - so it sounds like you guys are still pretty closely monitoring the SMP market. Can you kind of talk about how the prices for modern vessels have trended since your last purchase?
John Wobensmith
I would say they have trended up and what's interesting is I think you are now seeing more of a focus on modern fuel efficient ships as we get closer to IMO 2020. And as we get closer to the need to install ballast water treatment systems which I think is - which is positive.
So I think you are seeing maybe a little more of a steady movement over the last few months on ownerships, but the newer modern ships have continued to tick up.
Unidentified Analyst
Okay. Thank you for that.
So you guys in addition also have the scrubber program plus the options. Has this kind of taken top priority in terms of use of capital compared to vessel acquisitions at least over the next maybe like six months?
John Wobensmith
Look, again I think you need to isolate this. The scrubber program will have probably a pretty high level of financing behind it, so from an equity standpoint not a huge investment.
In terms of our fleet renewal program as I said, that is moving forward. So you will see us redeploy the cash that's raised on the older vessel sales into the newer more fuel efficient vessels.
Then we have to assess what the next move is in terms of growth. And as I said before, we have a sizable cash position.
I think we are one of the lowest levered in the peer groups, so a conservative capital structure. We still have a lot of room to do things in terms of growth.
But what we want to do is execute the fleet renewal program, which in itself is SMP and obviously buying tonnage and our scrubber program on the Capes, which would have a high degree of financing attached to it.
Unidentified Analyst
And when you think about potentially putting scrubbers on vessels outside of the Capes, what kind of gives you the biggest pause? Is it just the availability of high sulfur fuel in all the smaller ports around the world that those vessels go to or is it just kind of when you are looking at the economics, it's just with the shorter voyages and fewer selling days?
What's kind of the bigger issue on your deal?
John Wobensmith
Look, I think there are two things. I think it's the availability of fuel and I think it is also how long does the spread stay in place.
So to give you some numbers here at a $200 spread and assuming that you are burning high sulfur fuel 100% of the time, you got about a 2.4 year payback on the Ultramax's, Supermaxes, when that - when you are only burning 75%, you got a little more in three years and then if you are only burning high sulfur fuel half the time because of availability, you are at five years and that's on a $200 spread. So it's not just location of high sulfur fuel, but it's what is your view in terms of how long that spread lasts before you get to equilibrium which is probably somewhere around $100 to $120.
We clearly know during 2020 or we believe in 2020 that that spread will be employed. So it could be higher, but the question is how quickly does the market adjust as we get into 2021 and 2022 and that's what we are working through.
Unidentified Analyst
Thanks for that. And then just last quick on the - a little follow-up on the soybean trade, it feels like that trade in general has gotten pulled forward.
Brazil is taking share from the US. Do you still think that we could see volumes kind of ramp here over the US kind of as is the seasonal pattern, just those volumes going elsewhere or do you kind of think it's going to kind of bounce around at the current depressed levels for the rest of the season?
John Wobensmith
Look, I am - as the tariffs stay in place, I am still concerned that at least for the season there will be some - there will be maybe 10 million tons of soybeans that would normally be shipped. It's very clear that Argentina is buying soybean from the US.
It's very clear that Brazil is buying soybean from the US, as well as countries in the EU. I think it's very hard to tell what is going to happen with China and whether they need to actually step in to buy US soybeans.
If you look at the price spread right now, it's basically –the Chinese would be made to be neutral, so they're not losing money even with the tariffs to buy US soybean. I think it's more political than anything else and I think that's a little bit of a black box.
Having said that going forward if these tariffs stay in place and the Chinese decide they don't want to be buying from the US, Brazil has already planted more soybean, they're looking to have a record crop next year which will start to be shipped sometime in February and March and I think they'll plant less corn and I think the US will do simply the opposite. They'll plant less soybean as well as - and then plant more corn.
I also think it's important to note that if these - that you can store soybean for at least 12 months. So if these tariffs stay in place in short-term and the US - the farmers take a storage standpoint and then also these trade issues get worked out, these US soybeans will shift and maybe you see it happen in the first quarter, so could just be pushing it out.
I think there's a lot of different routes here, but I think net-net you ultimately wind up with no real destruction of ton miles, it just maybe more of a timing issue.
Unidentified Analyst
Thanks for the color. I really appreciate it.
John Wobensmith
Okay, you're welcome.
Operator
Our next question is from Max Yaris [ph] of Morgan Stanley.
Unidentified Analyst
Hi, guys. Thank you.
A couple market questions. We talked about some short-term hiccups, but what do you expect the pace of Chinese demand specifically for iron ore to be in 2019 and what is the potential there for stimulus if tariffs kind of continue or trade tensions worsen.
John Wobensmith
Well, like first of all I think the stimulus has already started. You've seen a lot of programs that have been announced over the last few months that obviously takes a little bit of time to get into the system.
So I - and I think the Chinese - my view is - this is the way they boost their economy. They've been - they've done it from time to time over the last 10, 15 years and I don't see that changing.
They still have their one bill one road program that they are very much committed to and I think they're very committed to continuing to increase their influence in the world economy, so I do think they will do everything they can to simulate if they have issues on the growth side because of the trade wars. Looking at the iron ore front, so we are actually - we're projecting somewhere around 5% growth in 2019 on the iron ore front.
And that's total seaborne trade. One of the - one of the - what I would call issues with iron ore this year is, I actually think there is more of a shortage because of the lack of iron ore from Angelo American, which will be coming back next year, that's 17 million tons.
I think it's probably aggressive to think, so Marco comes back next, I think that maybe a 2020 event what we'll see. But between Angelo American coming next year again between the continued growth from Valley and that's 11D and the fact that I strongly believe the Chinese are going to continue to take every piece of iron ore that is produced out of Brazil and Australia, particularly the high quality.
That's where we see the growth and I will - I've said this many times and I think it's very important to keep in mind. The demand side seems to be moving as anticipated, but we are in a very low supply situation from a historical standpoint where we're seeing anywhere from two - only 2% to 2.5% supply growth in '18 and '19 and now I think you have pretty good visibility on 2020 as well.
And so you only need very small incremental gains on the demand side to continue to build off of the recovery that really started late 2017.
Unidentified Analyst
Right, makes sense and then you talked about bauxite trade, just wondering if you could help quantify what that means off your fleet, maybe what percentage of cargoes that is for you or how big a factor that is going forward?
John Wobensmith
Look, I think for the case it's going to be more and more of a factor out of any. I think there's - I think Marsal is projecting maybe a 6% growth rate in the bauxite trade for next year.
A large amount of that is coming out of Guinea and a large piece of that is on Cape. So I think everybody obviously focuses on the iron ore and coal trades and rightly so those are those are big numbers, but the bauxite is becoming more and more relevant out of Africa.
Unidentified Analyst
Okay and then just final question. I guess when is the latest that you could exercise the options for scrubbers, I mean is there yard availability, does that have to be executed in 1Q '19?
John Wobensmith
Well, I mean look we're - from just a contractual standpoint we're making sure we have the option going into 2020, but I - again as I said earlier I really expect us to make a decision in the very early –at the latest in the very early part of 2019. We do have yard space, we have secured that, but I agree with you yard space is becoming more and more of an issue so we do want to decide on that sooner rather than later.
Unidentified Analyst
Sounds good, thank you.
John Wobensmith
Thank you
Operator
You have a question from Liam Burke of B. Riley FBR.
Liam Burke
Thank you. Good morning John.
John Wobensmith
Good morning, Liam.
Liam Burke
John on the scrubbers you opted for open and closed systems or are you going to a hybrid?
John Wobensmith
Yeah, so what we're doing is we are doing an open loop with a with a hybrid option.
Liam Burke
Okay and on the low sulfur fuel in 2020, obviously it will step up the operating costs of the fleet, is - are you looking at your efficiency or a more efficient fleet as a competitive advantage to help offset the fact that you're going to be incurring higher fuel costs?
John Wobensmith
Yeah, I think there's a couple things. I mean, I - in terms of burning additional fuel, it might be an additional kind of day or so in terms of operating and again this is where the newer ships that have better consumption rates which is why we bought those four fuel efficient Capes, it all comes into play whether it's burning compliant fuel or high sulfur fuel.
And again I'll reiterate the flow meters and the digital data gathering that we're doing on the fuel side will help us keep that extra fuel burn to a minimum, so we can we can run the ships that not only efficient speeds but also efficient consumption ratios.
Liam Burke
Great, thank you John.
John Wobensmith
Thank you.
Operator
And this does conclude our Q&A session for this morning.
John Wobensmith
Great, thank you everyone.
Operator
This does conclude today's Genco Shipping & Trading Limited third quarter 2018 earnings conference call. You may now disconnect your lines and everyone have a great day.