Stock Name: MISC
Company Name: MISC BHD
Research House: CIMB
Tanker Shipping
Maintain underweight: We maintain our 'underweight' call on the crude tanker shipping sector as freight rates are set to fall in the next two years as a result of excessive newbuild deliveries. Although the demand for oil has recovered this year, it has not been sufficient to offset the large pool of excess tankers. We view the current rate recovery as purely seasonal in nature, assisted by the delays at Turkey's Bosporus Straits caused by fog, the coming ice restrictions in the Baltic and the expected rise in oil consumption as a cold winter hits the northern hemisphere. We maintain our 'underperform' call for MISC Bhd (target price: RM7). Despite likely weaker chemical shipping rates in 2011, PT Berlian Laju Tanker Tbk (TP: IDR660) remains an 'outperform' on the basis of its attractive 0.4 time price-to-book value valuation.
The Baltic Dirty Tanker index rose 27% to 30% in the month to Dec 10, mainly on the back of a 26% rise in average suezmax earnings and a quadrupling of average aframax earnings since Nov 12. Both the suezmax and aframax sectors benefited from the congestion at Turkey's Bosporus Straits, where seasonal fog is causing transit delays of around 25 days for both north and southbound. However, suezmax and aframax rates in the Mediterranean dropped last week as the backlog of ships in the Bosporus began to clear and charterers reduced cargo bookings to bring rates down. Aframax rates in the Baltic more than doubled last week as the unseasonably cold month led to a rush to book scarce ice-class aframax ships before ice restrictions come into place at the Russian port of Primorsk. It is worth noting that only owners of a very limited pool of ice-class aframaxes benefit from this.
China's oil imports jumped 28% or 4.52 million tonnes month-on-month (m-o-m) in November, which more than offset a 5.4% or two million tonne m-o-m fall in US oil imports. This helped drive up chartering activity, leading to a rise in very large crude carrier (VLCC) rates in mid-November. However, the number of available VLCC units remained higher than demand and VLCC rates fell for the third straight week. Hopes for a winter rally are dissipating. Shipbroker Charles R Weber noted that another 10 to 15 VLCC cargoes can be expected for the rest of December, against an expected availability of 40 units. This suggests that the excess vessels will spill over into January and the VLCC sector could see a depressing start to 2011.
We introduce a set of floating storage lead indicators in this report, where we track the spread between the 12-month forward and spot crude oil prices and calculate whether a buy-spot-and-sell-forward strategy is profitable. We note that the rise in crude oil prices over the past month has actually been sharper at the front end of the curve, leading to a flattening of the contango which reduces the profit available to oil traders. After deducting charterhire costs and financing expenses, floating oil storage will actually yield a loss of US$5.10/bbl over 12 months. Under present circumstances, the employment of VLCC or suezmax ships for oil storage will be minimal and the full brunt of the excess capacity will bear on spot rates after the winter is over. ' CIMB Research, Dec 16
This article appeared in The Edge Financial Daily, December 17, 2010.
Company Name: MISC BHD
Research House: CIMB
Tanker Shipping
Maintain underweight: We maintain our 'underweight' call on the crude tanker shipping sector as freight rates are set to fall in the next two years as a result of excessive newbuild deliveries. Although the demand for oil has recovered this year, it has not been sufficient to offset the large pool of excess tankers. We view the current rate recovery as purely seasonal in nature, assisted by the delays at Turkey's Bosporus Straits caused by fog, the coming ice restrictions in the Baltic and the expected rise in oil consumption as a cold winter hits the northern hemisphere. We maintain our 'underperform' call for MISC Bhd (target price: RM7). Despite likely weaker chemical shipping rates in 2011, PT Berlian Laju Tanker Tbk (TP: IDR660) remains an 'outperform' on the basis of its attractive 0.4 time price-to-book value valuation.
The Baltic Dirty Tanker index rose 27% to 30% in the month to Dec 10, mainly on the back of a 26% rise in average suezmax earnings and a quadrupling of average aframax earnings since Nov 12. Both the suezmax and aframax sectors benefited from the congestion at Turkey's Bosporus Straits, where seasonal fog is causing transit delays of around 25 days for both north and southbound. However, suezmax and aframax rates in the Mediterranean dropped last week as the backlog of ships in the Bosporus began to clear and charterers reduced cargo bookings to bring rates down. Aframax rates in the Baltic more than doubled last week as the unseasonably cold month led to a rush to book scarce ice-class aframax ships before ice restrictions come into place at the Russian port of Primorsk. It is worth noting that only owners of a very limited pool of ice-class aframaxes benefit from this.
China's oil imports jumped 28% or 4.52 million tonnes month-on-month (m-o-m) in November, which more than offset a 5.4% or two million tonne m-o-m fall in US oil imports. This helped drive up chartering activity, leading to a rise in very large crude carrier (VLCC) rates in mid-November. However, the number of available VLCC units remained higher than demand and VLCC rates fell for the third straight week. Hopes for a winter rally are dissipating. Shipbroker Charles R Weber noted that another 10 to 15 VLCC cargoes can be expected for the rest of December, against an expected availability of 40 units. This suggests that the excess vessels will spill over into January and the VLCC sector could see a depressing start to 2011.
We introduce a set of floating storage lead indicators in this report, where we track the spread between the 12-month forward and spot crude oil prices and calculate whether a buy-spot-and-sell-forward strategy is profitable. We note that the rise in crude oil prices over the past month has actually been sharper at the front end of the curve, leading to a flattening of the contango which reduces the profit available to oil traders. After deducting charterhire costs and financing expenses, floating oil storage will actually yield a loss of US$5.10/bbl over 12 months. Under present circumstances, the employment of VLCC or suezmax ships for oil storage will be minimal and the full brunt of the excess capacity will bear on spot rates after the winter is over. ' CIMB Research, Dec 16
This article appeared in The Edge Financial Daily, December 17, 2010.
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