KUCHING: There is no reprieve in tanker charter rates just yet due to causes such as high refinery maintenance costs, higher tanker fleet growth and shrinking demand stemming from the production cut by the Organisation of Petroleum Exporting Countries (Opec).
In a sector update by the research arm of Kenanga Investment Bank Bhd (Kenanga Research), spot rates for very large crude carriers (VLCC) in May dropped 66 per cent year on year (y-o-y) to a low of US$15,500 per day – quickly approaching new lows in the past few years.
“Suezmax average spot rate in May had fallen marginally by 3 per cent month over month (m-o-m) to US$17,400 per day while Aframax rates have seen some improvement of 7 per cent m-o-m,” reported the research arm who added that the rate were unlikely to recover anytime soon.
“We do not foresee strong catalysts to drive up the charter rates in the near-term as Opec has agreed to extend its production cut deal for another nine months up to end of March next year amidst excess tonnage in the market.”
On the flip side, LNG spot rates saw a rebound of 7 per cent m-o-m by new gas projects in Asia Pacific.
The optimistic trend is however not expected to be entirely sustainable as vessel oversupply in the segment is likely to persist with more newly built LNG tankers coming online this year and next.
Meanwhile looking at sector on the whole, the post-alliance reshuffling environment is expected to adversely impact shipping giant Westports Holdings Bhd (Westports) while the impact should be neutral on Port Tanjung Pelepas (PTP).
The upcoming rounds of corporate results from ports should reflect this prediction as Wesports has already posted a year over year (y-o-y) three per cent lower year to date-end May container throughout of 3.95 TEUs
“This is in line with our expectations of lower throughput post-reshuffling for Westports, as the previous Ocean Three alliance has now transitioned into the Ocean Alliance.
“This is coupled with volume losses from CMA CGM to PSA, as well as the completed merger between UASC and Hapag-Lloyd.
“Overall, we expect 2017 to be a new base for Westports in which the port can organically grow, underpinned by expansion plans of CT8 Phase 2 and CT9 Phase 1.
“Meanwhile, we expect the alliance reshuffling to have a largely neutral impact for PTP, operated by MMC Corporation Bhd (MMC), as it mainly serves the 2M Alliance, which saw minimal changes during the reshuffling,” guided the research arm.
With that said, Kenanga Research maintained its ‘market perform’ rating on Westports with a target price of RM4.10 per share.
It also maintained its ‘outperform’ rating for MMC with a target price of RM2.90 as its forward earnings are expected to be sustained from growth of its port operations and earnings from its construction operations and sales.