The ship is still sinking for Singapore's shipyard sector

Oil prices and contract wins are not enough.

Despite the rise in prices in the Brent crude and recent contract wins, recovery may still be out of reach for the shipyard sector, according to UOB Kay Hian.

The firm said the recent rally in Brent crude prices was caused by the potential supply disruption of non-OPEC production in Turkey and Iraq, along with positive comments from major producers on oil rebalancing progress.

However, oil price forecasts stayed at $76.1-77.5/bbl (US$56-57/bbl) for 2018, and were not revised above the $81.6/bbl (US$60/bbl) level needed to catalyse further investment in the sector.

Still, the industry continues to push for less than $54.4/bbl (US$40/bbl) breakevens.

According to analysts Foo Zhiwei and Andrew Chow, "Even with higher oil prices, we re-iterate that oil majors will require price stability of 6-9 months before revising up their assumptions, putting any significant offshore capex recovery at least a year off."

In the meantime, oil majors continue to push for lower project breakevens, with major players such as BP, Statoil and Total reiterating their goal to keep it at $54.4/bbl (US$40/bbl) and below.

Unit pricing for oil-related contracts is also closely tied to the project budget and likely to remain suppressed.

"Securing tenders now is a matter of being the lowest cost supplier, as order-hungry yards drive down prices," Zhiwei and Chow said.

Here's more from UOB Kay Hian:

Share price has been lifted by positive sentiment in oil prices and the recent spate of contract wins. However, there still remains no clear earnings drivers.

The recovery is reminiscent of the rally in 1Q17, which was driven by positive sentiment in the oil price outlook. Since then, both KEP and SMM have seen consensus make significant earnings forecast downgrades. Reality has not met expectations.

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