Dark days dawn for offshore and marine firms as rig-building activities grind to a halt

Sliding oil prices are to blame.

Singapore’s once-busy shipbuilders have been left high and dry by sliding oil prices. Investors are already lamenting a dearth of new orders, as a heavy newbuilding backlog is expected to flood the market over the next two years.

According to CIMB, the dearth of new orders will be especially pronounced for SGX-listed companies like Ezra and Vard, which are geared towards deepwater activities. Sembcorp Marine, Keppel Marine and Nam Cheong would also be affected since they are leveraged to the capital investment cycle.

“We believe that deepwater and ultra-deepwater activities would be the most affected, since they are most sensitive to oil prices. Brent, the global oil benchmark, has dropped some 15% since June, slipping below US$100/bd to a two-year low of c.US$97," noted CIMB.

We are currently witnessing an environment of softer demand growth in both Europe and China, combined with ongoing surge in US production. According to Douglas Westwood, investment levels and oil majors' strategies could be radically altered if the Brent drops below US$85/bbl. That is, we are going to see pressure on the supply chain to cut costs, delays in projects sanctioning and major modifications in projects,” the report added.

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