Cosco Shipping Energy Transportation Co.Ltd(600026) , China Merchants Energy Shipping Co.Ltd(601872) last year’s oil transportation business both failed. Is there any possibility of oil transportation recovery this year?
2021 is a difficult year for the international oil transportation industry. VLCC, the main ship type of crude oil transportation, is in a state of negative freight rate most of the time. The oil transportation business of China’s two oil transportation giants with a large number of VLCC ship types is not ideal.
Since this year, since the outbreak of the conflict between Russia and Ukraine, the Baltic crude oil transportation index has risen all the way. How will the supply and demand pattern of the international oil transportation market evolve in the future? Will the oil transportation market recover this year?
Two major oil transportation giants are both defeated
2021 is a difficult year for the oil transportation industry. China’s two major oil transportation giants Cosco Shipping Energy Transportation Co.Ltd(600026) ( Cosco Shipping Energy Transportation Co.Ltd(600026) . SH) and China Merchants Energy Shipping Co.Ltd(601872) ( China Merchants Energy Shipping Co.Ltd(601872) . SH) both recorded huge losses in oil transportation business in 2021, with a total loss of about 1.75 billion yuan.
During the reporting period, the freight income of China Merchants Energy Shipping Co.Ltd(601872) tanker decreased by 55.04%, and the VLCC fleet suffered an obvious operating loss for the first time since the establishment of the company, with a loss of 514 million yuan.
Compared with China Merchants Energy Shipping Co.Ltd(601872) which still has a high proportion of profits in dry bulk cargo and container business, another oil transportation giant Cosco Shipping Energy Transportation Co.Ltd(600026) , is a more “pure” transportation enterprise of crude oil, refined oil and natural gas.
In 2020 Cosco Shipping Energy Transportation Co.Ltd(600026) can still make a profit of 2.372 billion yuan, but in 2021, Cosco Shipping Energy Transportation Co.Ltd(600026) will suffer a significant loss of 4.975 billion yuan. Among them, the foreign trade LNG transportation business recorded a net profit of 660 million, and the domestic trade oil transportation revenue increased slightly. However, the oil transportation revenue of foreign trade oil transportation business decreased by 39.8% to 5.768 billion yuan year-on-year, the transportation gross profit recorded a loss of 1.236 billion yuan, and the gross profit margin was – 21.4%, a year-on-year decrease of 48.2 percentage points.
The reasons explained by the two giants are also similar: the supply and demand of the oil transportation market continues to be unbalanced.
China Merchants Energy Shipping Co.Ltd(601872) said that the market capacity was seriously oversupplied. On the demand side, under the influence of the epidemic, the demand for crude oil decreased, and the supply was limited due to OPEC + production restriction. The total volume of VLCC decreased by 5% year-on-year in 2021; On the supply side, at the end of 2021, the number of VLCC participating in maritime trade increased by 49, or 5.9%, compared with the beginning of 2020. The supply of transport capacity was in excess, and the freight rate fell to the lowest level in nearly 20 years.
At the same time, the price of crude oil generally rose last year. At the end of 2021, the price of low sulfur oil rose to about 640 US dollars / ton, which was a high level in recent two years. The fuel price rose, increasing the voyage cost of ship owners, and the voyage income was eroded by high oil prices.
Cosco Shipping Energy Transportation Co.Ltd(600026) also said that from the perspective of tanker capacity supply, in 2021, the global VLCC delivered 35 ships and disassembled 17 ships, with a net increase of 18 ships. The release of offshore oil storage and transportation capacity has exacerbated the situation of excess oil tanker transportation capacity, which makes the oil transportation market lack the driving force of recovery.
In the same period, the average time charter equivalent (TCE) of VLCC td3c (Middle East China) route was only – 518 US dollars / day, the lowest annual average in the history of the route, and 48179 US dollars / day in 2020. TCE of representative routes of other major ship types decreased by about 70% – 100% year-on-year.
The situation of China’s two giants has revealed the tip of the iceberg of the current situation of the global oil transportation market. Under the influence of the epidemic, the global industrial production has recovered slowly. By 2022, the situation in Russia and Ukraine has impacted the whole oil transportation market again.
Freight rate differentiation of oil tanker
On April 8, the Baltic crude oil transportation index (BDTI) climbed to a new high of 1657 points in the year.
In January this year, BDTI was originally hovering around 700 points, but after the outbreak of the conflict between Russia and Ukraine in February, BDTI climbed all the way. Although it fell back in the middle, it rose again in recent days, and has soared by 500 points in 10 days.
Judging from the news, on April 5 local time, European Commission President von delaine said that the Commission had proposed the fifth set of sanctions against Russia, which would prohibit Russian ships from entering EU ports. The market view is that the new round of EU sanctions will threaten the relevant Russian oil transportation enterprises, and the oil transportation capacity will face a shortage in the short term, resulting in the popularity of some ship types.
according to a tracking data of the global shipping market on April 7, China Securities Co.Ltd(601066) 7, among the types of crude oil tanker transportation ships, the freight rate of VLCC VLCC VLCC is – 8303 US dollars / day, with an average annual year-on-year decrease of 177.53%. However, medium-sized ships gained a very good market: Suez ships recorded US $95981 / day (about 610000 yuan / day), up 34.88% on a weekly basis; Afra ship freight rate recorded US $69187 / day (about 440000 yuan / day), with a weekly increase of 32.39%, and the latter two increased by more than 3000% year-on-year.
The chief transportation analyst of a leading brokerage told times finance that European and American countries have taken relevant sanctions against Russian oil tankers, resulting in the short-term lack of oil transportation capacity, and there are more medium-sized oil tankers in Europe, so they are popular in the recent market.
“VLCC is generally used for routes from the Middle East to the Far East, from West Africa to the Far East, from the United States to the Far East, and from West Africa to Europe. If it is from the Middle East to the Mediterranean, it basically uses this medium-sized ship.” The chief analyst of the above transportation said.
It is worth mentioning that, as the main ship type of international crude oil transportation, VLCC has maintained a negative freight rate for a long time. The reason is that the current freight rate can not cover the operating costs such as crew wages and ship maintenance. Moreover, the overall freight rate of oil tankers is high in 2020, which will gradually decline later. However, on the premise of high base, VLCC freight rate has a negative annual growth year-on-year.
“At present, VLCC is at a loss, and $25000 / day is the breakeven point. If it is less than this value, it is still at a loss. From this point of view, the performance of China’s two giants in oil transportation is difficult to get out.” The chief analyst of the above transportation pointed out.
According to public data, by the end of 2021, China Merchants Energy Shipping Co.Ltd(601872) has 51 self owned VLCC oil tankers, which is the world’s largest free VLCC fleet, with its own transport capacity ranking first in the world. Similarly, by the end of 2021, Cosco Shipping Energy Transportation Co.Ltd(600026) has become the world’s largest tanker fleet in terms of capacity. It owns and controls 166 tankers, including 154 owned and 12 leased.
The chief analyst of the above transportation pointed out that the two leaders do not have so much layout on small and medium-sized ships. “China is a big importer of crude oil, and it still has to rely on VLCC for transportation on the main route. The conflict between Russia and Ukraine is an emergency. For their two companies, it is more realistic to hold more VLCC in their long-term operation strategy.”
How about the oil market?
So, how will the supply and demand situation of the global oil transportation market evolve this year? Is there any possibility of recovery?
From the perspective of supply and demand, Sui Xiaoying, head of Petrochemical Group of Founder medium-term futures investment consulting department, told times finance that at present, global oil consumption is still recovering compared with 2021, but it has not yet returned to the level before the epidemic, and the recovery rate of oil consumption has slowed down due to the epidemic and the slowdown of economic growth.
Under the global epidemic prevention and control, on the one hand, the travel demand of residents has decreased, thus reducing the terminal fuel consumption; On the one hand, it will also affect the production and logistics transportation of some enterprises, resulting in a decline in the demand for raw materials of enterprises in the upstream of the industry, and then reduce the demand for related oil products such as crude oil or diesel oil.
“Moreover, the price of Brent crude oil has been above US $100 recently. Under the high oil price, the terminal oil consumption and enterprise demand will be restrained to some extent. The high oil price will not only restrain the driving demand of residents, but also raise the production cost of enterprises, so as to curb the demand of enterprises.” Sui Xiaoying pointed out.
The chief analyst of the above transportation also said that the recovery of global crude oil demand is still not optimistic. Although western countries generally hold an open attitude towards the epidemic, the epidemic will still have an impact on industrial production. “For example, if workers have covid-19 and workers must go home and be isolated, it will also have an impact on the overall work efficiency.”
He also pointed out that the impact of sanctions imposed by European and American countries on Russian oil transportation enterprises should not be ignored.
“It still depends on the effective demand. For example, Russia has been sanctioned. If Russian crude oil cannot be transported to Europe, it must be transported to the Far East. Under the same conditions, if it is transported to Europe and the Far East, the route with short distance can transport more volume in a year, and if it is transported to a long distance to maintain the same volume, it needs to invest more teams. Conversely, this is equivalent to increasing the demand.”
It is worth mentioning that the United States is considering relaxing sanctions on Iran and Venezuela in order to alleviate the pressure of high oil prices.
White House News inflamer pusaki previously said that U.S. officials visited Caracas, the Venezuelan capital, and the two sides discussed relaxing sanctions and transporting oil. At the same time, the negotiations between the United States and Iran are getting closer and closer to reaching an agreement. If the agreement is reached, the sanctions against Iran may be lifted, and Iranian oil will flow into the global market at that time.
As for whether the oil transportation market can recover this year, the chief analyst of the above transportation is more optimistic. This year is a big year and the last year of supply delivery. Later, the supply may be much less slowly, and on the whole, the supply will end faster. The resistance to recovery also lies on the supply side. It depends on whether the current ship owners are willing to tear down more ships. If the holder feels that the tanker can’t lose money, he will tear down the old ship. At present, the ship breaking price is also relatively high, which is a good time for ship breaking.
From the perspective of freight rate, it will gradually improve this year. He said, “at present, the freight of VLCC is – 8000 US dollars / day, and it may reach – 4000 US dollars / day or – 2000 US dollars / day or even 2000 US dollars / day later. Generally, it may lose money, but the freight price tends to repair on the trend.”
