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1. Historical review of the oil transportation industry: transportation prices fluctuate violently and show strong cyclicality
.1 The supply and demand of crude oil fluctuate significantly, and the oil transportation industry shows cyclical characteristics and is greatly affected by political and economic factors
Review of history, 1947-2018 The freight rates in the global oil shipping market showed obvious cyclical fluctuations in 2017, and have experienced a total of nine significant cycles, with the average duration of each cycle being 7.2 years. has very drastic freight price fluctuations in every cycle. The freight rates at the high and low points of the boom are as much as 5-6 times. The driving factors of the crude oil shipping price cycle are mainly changes in the supply and demand sides. Some important events and economic fluctuation cycles will have a significant impact on the oil shipping market by affecting both supply and demand.
By summarizing the reasons for the ups and downs of each oil shipping cycle, it can be found that changes in the geopolitical situation in the Middle East and changes in demand caused by the sensitivity of the world market to crude oil prices are the most important factors affecting oil shipping prices. The average duration of the oil transportation price upward cycle is 3 years, with the longest being 7 years and the shortest being 1 year; while the average duration of the downward cycle is 4 years, with the longest being 10 years and the shortest being 1 year. After the 21st century, the growing crude oil consumption demand in emerging countries and the emergence of emerging oil-producing countries have become new drivers of cyclical changes in the industry.
.2 Review of the last cycle (2013-2018): The supply side was impacted, and the demand side gradually recovered
Judging from the cyclical changes in the average daily rent of VLCC ultra-large tankers, the last upward cycle of oil shipments was in 2013 -2015, and the downward cycle is 2016-2018. The average daily rent of VLCC at the highest point in the last cycle reached US$65,000/day, an increase of 117% from the previous year's rental level. The daily rental level of a VLCC tanker at the break-even point is generally US$30,000/day. All over the world, relative to the break-even price, the average daily income of a single oil tanker reaches US$35,000, and the annualized income is US$12.78 million (approximately RMB 88.83 million).
Supply side: OPEC Crude oil production resumed growth in 2015, driving global crude oil shipping volume to begin to grow. Brent crude oil prices fell sharply, and a large number of VLCC oil tankers were used as offshore floating warehouses and withdrew from effective shipping capacity. In 2015, oil storage and shipping capacity accounted for The ratio increased to 3.4%, reaching a cycle high. As the proportion of ineffective shipping capacity such as sanctions and old and idle ships increased to a high level, the supply side further tightened.
Demand side: The sharp drop in oil prices has brought about the growing demand for oil storage and terminal oil. From 2015 to 2016, the price of Brent crude oil fell to a low, and the demand for transportation capacity for consumer and speculative oil storage increased significantly, resulting in a tense relationship between market supply and demand. The unit freight rate of oil tankers increased significantly, and the industry showed a high degree of prosperity.
Downward cycle: From 2016 to 2017, with the previous concentrated batch delivery of new ship orders, the growth rate of VLCC crude oil shipping capacity gradually increased. At the same time, the superposition of higher market freight prices caused the dismantling of old ships to be postponed, and VLCC shipping capacity grew rapidly. Year-on-year increases of 7.4% and 5.3% respectively. At the same time, market freight rates began to gradually fall after reaching a cycle high in 2015, and the oil shipping industry entered a downward cycle. In the first half of 2018, affected by the return of oil storage and transportation capacity to the market, the supply side began to reverse. The oil transportation market was oversupplied and freight rates fell to historical lows.
2. Cycle prediction: 2020 may be the first year of increased economic prosperity in this cycle.
.1 The pressure of the epidemic coupled with the plummeting oil price has stimulated the demand for oil storage, and the increase in the proportion of floating warehouses has driven up freight prices.
VLCC has both transportation and floating storage of oil. Function, with countercyclical properties. Under the pressure of COVID-19, the adjustment efficiency of production cuts in the world's major oil-producing countries generally lags behind the decline in demand, resulting in increased demand for inventory storage after receiving crude oil shipping orders. The proportion of VLCC applications in offshore floating warehouses is expected to rise significantly, accelerating oil transportation capacity Exit the market and increase the overall freight rate level. Meanwhile, on March 9, light crude oil futures for April delivery on the New York Mercantile Exchange fell 32.32% intraday to US$27.94 per barrel, hitting the lowest value since April 2003.London Brent crude oil futures for May delivery fell by US$13.46 to US$31.81 per barrel, a drop of 29.73%, which was significantly lower than the average oil price of US$64.16 per barrel in 2019. Affected by storage costs, the spot structure of crude oil futures is usually dominated by discounts. However, due to the recent plunge in oil prices, the decline in Brent and WTI crude oil futures in recent months was higher than the decline in far months, and both showed a significant premium structure, further stimulating crude oil storage demand in major consuming countries and speculative oil storage arbitrage space, which can be used as floating storage reserves The number of VLCCs has begun to increase, effective shipping capacity is continuing to withdraw from the market, and the overall freight rate is expected to exceed expectations after the epidemic stabilizes.
Compared with the previous cycle, the freight price peak was in January 2016 when the VLCC-TCE price reached a maximum of US$100,000/day, corresponding to the highest spot price difference of Brent crude oil at US$4.1. At this time, the number of VLCC oil storage and transportation capacity was 70 vessels. The corresponding total transport capacity accounted for 7.6%. The current oil transportation rental price is around US$40,000/day. The average oil storage capacity of a single VLCC is 2 million barrels. If the average lease period is 3 months and the annualized capital cost is 2.5%, then a single VLCC needs to consume crude oil. The total purchase cost + capital cost + tanker rental cost is US$74.06 million. The break-even point equivalent to the current price difference is US$2.03/barrel. That is, under the same capital cost, the March forward oil price is US$2.03/barrel higher than the spot oil price. There is room for arbitrage in the above. The current price difference of crude oil futures fluctuates around US$2.5, which is higher than the break-even point. Therefore, the arbitrage space is expected to be maintained, and shipping capacity will continue to withdraw from the transportation market, which will lead to an increase in rental prices. If the futures spot difference remains at US$2.5, sensitivity analysis estimates that the VLCC rent can reach approximately US$50,000/day under the same conditions. At this time, oil transportation prices may maintain a certain high level of stability.
.2 The supply and demand relationship has reached a cyclical turning point
Because the oil shipping industry is an asset-heavy industry, fixed expenses account for a large proportion of total revenue and are not volatile, and freight rates have become the most core factor affecting the profit level of oil tanker companies. Generally speaking, the freight rate level of oil transportation is mainly determined by the supply and demand relationship of the industry.
Supply side: The overall ship order delivery volume is expected to decline, and the oil transportation capacity tends to tighten.
Analyze the current situation of the global oil transportation industry from the supply side perspective. The supply side of the industry is mainly affected by the number of new ship orders, ship order delivery volume, and old ships. Eliminate the influence of three main changing factors on the quantity of dismantling. The number of new ship orders has gradually declined since 2017Q2; currently, global oil tanker orders on hand account for 8.5% of existing shipping capacity, among which VLCC orders on hand account for 9.4% of VLCC’s existing shipping capacity, which is close to the previous oil tanker level. Run the low level of the market cycle. As the epidemic in South Korea worsens, shipbuilding and ship repair progress may slow down, causing further restrictions on shipping capacity. The cycle from initiation to actual delivery of an oil tanker order is generally 1-1.5 years. Judging from the current orders on hand, it is expected that the delivery quantity and proportion of overall oil tanker orders will decline significantly in 2020-2021, while the number of old ships scrapped will reach a high level, causing the supply side to tighten.
Demand side: Crude oil production needs to stabilize, and shipping demand may recover simultaneously after the epidemic improves.
According to our calculations, the growth rate of global crude oil shipping volume has a positive correlation with the growth rate of OPEC crude oil production. Each round of OPEC crude oil production rises That is the upward cycle of global crude oil shipping volume. In 2019, the growth rate of OPEC crude oil production turned from positive to negative, which also led to a decline in the growth rate of global crude oil shipping volume. The growth rate of OPEC crude oil production in 2018-2019 was 1.0% and -3.7%, while the growth rate in the previous two years was 5.5% and 0.0%. OPEC's crude oil production is currently running at a low level, while the demand side is in a slow recovery state; in addition, as OPEC's crude oil production growth slows to bottom, the plunge in oil prices stimulates oil storage demand, and some VLCCs will be used as offshore floating tank storage. The withdrawal of oil from the market has further reduced the supply of transportation capacity in the industry, increased the overall oil transportation demand, and brought about periodic investment opportunities in the oil transportation industry. It is expected that crude oil production will stabilize and rebound in 2020, driving a new round of upward growth in global crude oil shipping volume.
The epidemic affects short-term energy demand and does not change the long-term recovery trend. We are optimistic about the rebound logic of the oil transportation industry .After the outbreak of the domestic health incident, the short-term demand for crude oil tightened, the domestic resumption of work was delayed after the Spring Festival holiday, consumption and business activities decreased, and highway, railway, and air transportation were all affected to varying degrees. According to CEIC statistics, domestic crude oil consumption in 2019 was approximately 14.56 million barrels per day, accounting for 14.6% of global consumption. Therefore, the sudden drop in domestic demand has a greater marginal impact on global crude oil demand. International crude oil is affected by China's continued delay in resumption of work, Due to the lower overall willingness to travel, prices have dropped significantly. Recently, the epidemic has shown a multi-point spread trend around the world, with South Korea, Japan, Italy, Iran and other countries becoming increasingly serious. The areas with more serious epidemics are mostly net importers and consumers of crude oil. The spread of the epidemic has further compressed demand and triggered Crude oil prices continue to fall. Judging from the epidemic data, the total number of newly confirmed cases is gradually declining. The number of newly confirmed cases nationwide has dropped from the peak of 15,152 on February 12 to less than 400 on February 27; except for Hubei, The daily number of new confirmed cases in other provinces dropped from the peak of 890 on February 3 to less than 50 on February 21; starting from February 18, the number of new cured and discharged cases across the country increased rapidly, exceeding the number of new confirmed cases. The number of cases is gradually increasing. The superposition of the three major factors fully releases the signal that the epidemic situation is improving. World crude oil consumption in 2019 was 100 million barrels/day. If the epidemic continues until April, the overall global crude oil demand is expected to increase by 1.3% year-on-year in 2020, corresponding to 101.3 million barrels/day; among which, crude oil shipping demand is expected to increase to 1 million barrels per day, a year-on-year increase of 2.5%.
.3 Transportation/freight index indicates an uptick in prosperity
In September 2019, the U.S. Treasury Department ordered COSCO Shipping Tankers (COSCO Shipping Tankers), a subsidiary of COSCO Shipping Tankers (COSCO Dalian), on the grounds of illegal transfer of Iranian crude oil. DaLian) is included in the list of Specially Designated Nationals and Blocked Persons. Dalian Tanker owns 26 VLCCs with a total load capacity of 7.9 million tons. Both quantity and scale account for 50% of COSCO Shipping Energy’s VLCC carrying capacity and 2.7% of the total carrying capacity of VLCC oil tankers operating in the world. This incident caused Panic about future oil transportation supply capacity has caused a rapid rise in global shipping prices. In addition, on October 11, 2019, an Iranian oil tanker exploded near the Saudi Arabian port of Jeddah. The ship was seriously damaged and a large amount of crude oil flowed into the Red Sea. Affected by this, panic in the oil shipping market reached its highest point, with market rents reaching US$300,000/day that day, a new historical high since 1990; the refined oil transportation index (BCTI) also reached its peak on October 11 1,941 points. Afterwards, on January 31, 2020, the U.S. Department of the Treasury announced on its official website that sanctions on Dalian COSCO Shipping Oil Shipping had been lifted and market supply had gradually returned to normal. At present, the United States still imposes sanctions on crude oil transportation from Iran and Venezuela, and there is great uncertainty as to when the restrictions on sanctioned shipping capacity will be lifted. Affected by the uncertainty of supply-side shipping capacity, VLCC freight rates still have relatively high flexibility, and freight rates and shipowner profits are expected to be higher than the same period last year.
The oil transportation boom cycle has begun, and ocean freight rates are expected to rise. On March 9, 2020, the crude oil transportation index (BDTI) was 778 points, the refined oil transportation index (BCTI) was 717 points, and the China imported crude oil freight index (CTFI) was 922 points. The three major indices respectively changed 4.9 points compared with the same period last year. %/24.7%/-13.3%, the oil transportation boom has bottomed out and is on the rise. With the gradual recovery of domestic crude oil import demand, VLCC rents have begun to stabilize and rebound. Currently, VLCC TD3C-TCE reaches US$31,000/day, up 69.1% week-on-week and -19.7% year-on-year; VLCC oil freight rates have reached the shipowner’s profit and loss At a balanced level, the downside space is limited, and freight rates are expected to maintain an upward trend in 2020.
The oil transportation market also has obvious cyclical characteristics throughout the year. After reaching a significant cyclical low in 2018Q2, oil transportation prices began to stabilize and rebound. Generally speaking, the oil shipping industry has obvious distribution of low and peak seasons. Due to the upward demand on the demand side, the first and fourth quarters have brought about the peak seasons of the traditional oil shipping industry, and the average oil shipping price is higher than the second and third quarters.Currently, VLCC tanker freight rates have reached a historic low since 1994 in Q2 2018. As the supply and demand pattern of the industry continues to improve, oil freight rates may gradually reach the bottom of history, and a new round of freight rate increase cycle is expected to begin in 2020.
.4 With the introduction of sulfur restriction orders, effective transport capacity will gradually withdraw.
With the installation of sulfur restriction devices, effective transport capacity will gradually withdraw. The 70th session of the Marine Environment Protection Committee of the International Maritime Organization decided to implement a global requirement that the sulfur content of marine fuel oil should not exceed 0.50% m/m from January 1, 2020 (previously 3.50% m/m). There are three main mainstream solutions to this regulation in the industry: using low-sulfur oil, installing desulfurization towers, and using new LNG ships. At present, various types of oil shipping vessels around the world have begun to install desulfurization devices intensively. The installation cost of a desulfurization tower is approximately US$3 million. From the perspective of economic benefits, generally the larger the ship type, the higher the proportion of desulfurization towers installed.
The implementation of the international sulfur emission cap treaty will have two impacts on the supply side of the industry: (1) affects short-term supply. Installing a desulfurization tower requires the ship to be docked and suspended for 1-1.5 months, and the time consumption is gradually increasing. According to Clarksons statistics, the installation of scrubbers in 2019 is expected to reduce the short-term effective transport capacity of the entire industry by 1.4%. The annualized transport capacity that will temporarily withdraw from the spot transportation market due to the installation of scrubbers in 2020 will account for approximately 0.7% of the total transport capacity. (2) Accelerate the dismantling and elimination of old ships. Currently, VLCC ships that have been in operation for more than 15 years account for 22% of all VLCC ships in the world. For this part of the ship, the possibility of using low-sulfur oil is very low, mainly through the installation of desulfurization towers to meet the requirements of the International Maritime Organization. . Because the competitiveness of old ships is lower than that of new ships, we expect that the scrapping of old ships will accelerate in 2020, resulting in a further phased reduction in the effective supply of shipping capacity in the market. Based on this, we judge that the oil tanker transportation industry has entered a new upward cycle, and the fundamentals of supply and demand in the international oil transportation market will continue to improve.
Gulf of Mexico data in December 2017 shows that the production cost of very low sulfur fuel oil (VLSFO) with 0.5% sulfur content is US$30-150/ton higher than that of high sulfur fuel oil (HSFO) with 3.5% sulfur content, and because low sulfur fuel oil Demand has entered the implementation stage as IMO2020, and the price gap has shown a gradual upward trend. Because high-speed navigation will increase fuel consumption levels and increase fuel costs for oil shipping companies, it is expected that shipowners will control shipping speeds to further reduce fuel consumption due to the increase in clean fuel prices, thereby achieving the purpose of cost control. Slowing sailing will further reduce the supply of shipping turnover in the market, thereby pushing up freight levels. According to Clarksons forecast, for every 0.25 knot reduction in sailing speed, the market capacity supply will decrease by 2-3%.
3. Supply and demand forecast and market outlook
.1 Supply-side calculation
Short-term supply: VLCC The ratio of new ship orders under construction to existing shipping capacity is the core indicator of supply-side growth. When the last major cycle started, the proportion of orders in 2003 was 14.8%, while the proportion of orders under construction in 2019 has been as low as 9.4%, lower than the low point of the previous cycle; orders under construction take an average of 2- In 3 years, the order volume and delivery volume are expected to remain low in the next three years. The delivery volume of new ships in 2020/2021/2022 will be 40, 23 and 3 ships respectively. The short-term supply growth rate will gradually decline and supply pressure will tend to decline. in a state of significant contraction.
In addition, short-term supply is constrained by crude oil prices. OPEC and non-OPEC oil-producing countries have not reached an agreement on production reductions. Saudi Aramco announced a significant reduction in oil selling prices and an increase in production. Short-term crude oil prices are expected to remain low. , bringing about an inversion in the term structure of Brent crude oil futures. The increase in the proportion of speculative floating storage oil has resulted in the withdrawal of effective shipping capacity, which has created room for continued improvement in oil shipping rates.
Long-term supply: Affected by environmental pressure and the successive coming into force of IMO environmental conventions, coupled with the immaturity of LNG-powered ship technology, replacement/replacement costs will further rise, and new shipbuilding capacity will gradually shrink. VLCC new ship orders from January to October 2019 were 12, a decrease of 73% compared with the same period last year, far lower than the 59 new ship deliveries, and long-term supply may continue to be restricted.
Assuming that future new ships will be delivered completely in accordance with existing orders, and the delivery rate is based on the historical average delivery rate of 73% from 2010 to 2018, the estimated delivery volume and carrying capacity of new VLCC ships in 2020-2021 will be 30 ships/9.18 million DWT, respectively. 13 ships/3.98 million DWT. Assuming that the market scrapping volume, offshore oil storage volume and the proportion of idle/sanctioned shipping capacity are adjusted according to the aging process of the fleet, market crude oil reserve demand and desulfurization tower installation progress, the global oil shipping market capacity growth from 2020 to 2022 is predicted. The speeds are 2.5%, 1.4%, and 0.5% respectively.
.2 Demand-side calculation
The COVID-19 epidemic has had a greater impact on the domestic demand side in the first and second quarters. Taking into account the significant reduction in the number of travelers and the decline in transportation capacity, we estimate that crude oil demand will fall by about 20%, or 3 million. barrel/day. Considering that crude oil inventories in importing countries remain stable, the demand suppressed by the epidemic may be delayed until the summer peak season. The growth rate of crude oil demand in developing countries such as China and India still has sufficient elasticity to release. It is expected that the epidemic will only have a short-term impact. , crude oil demand may rebound in the second half of the year, and the demand for inventory replenishment will lead to a strong off-season.
In addition, according to EIA forecasts, the average crude oil production in the United States will rise to 13.3 million barrels/day in 2020 and may rise to 13.7 million barrels/day in 2021, representing year-on-year increases of 9.0% and 3.0% respectively. The net increase in crude oil exports will be mainly contributed by the increase in U.S. exports. It is expected that U.S. crude oil exports will maintain the growth rate in 2019 in 2020, with a year-on-year increase of about 45%; It is expected that as the U.S. Gulf crude oil export transportation distance increases, in 2020 The average annual crude oil transportation distance may increase by 2.9%. Taking into account changes in crude oil shipping volume, the corresponding crude oil turnover demand is expected to increase by 5.4%.
.3 Oil tanker freight rate calculation
The average value of VLCC-TCE in the past 20 years is 43,822 US dollars/day. The freight rate level is affected by both supply and demand factors. We have analyzed the changes in both sides of supply and demand over the years, and the cumulative supply and demand gap/redundancy. And predict the oil freight rates from 2020 to 2022 based on the fluctuations in freight rates. It is estimated that the average VLCC-TCE freight rates from 2020 to 2022 will be 54,224, 78,510, and 101,763 US dollars per day respectively, with year-on-year increases of 56.4%, 44.8%, and 29.6% respectively. The crude oil transportation industry is expected to usher in an upward boom cycle of more than 3 years.
4. Investment strategy of oil shipping companies: first recommend China Merchants Shipping , pay attention to COSCO SHIPPING Energy
.1 Oil shipping companies lead the gains, valuations can still be improved
The shipping sector underperformed the market, and oil shipping companies led the gains. From the beginning of 2019 to January 6, 2020, the shipping sector rose by 25.8%, underperforming the CSI 300 Index, but oil shipping stocks led the way, among which China Merchants Energy Shipping rose by 117.0% and COSCO Shipping Energy rose by 51.5%.
There is still room for improvement in the valuation of the oil transportation sector. China Merchants Energy Shipping's current (March 9, 2020) PB is 1.48 times, which is 28.4% of the historical valuation; COSCO Shipping Energy's current PB is 0.83 times, which is 42.7% of the historical valuation. The 2020 sulfur limit order has eased supply pressure and accelerated U.S. crude oil exports, which is expected to increase the average line distance and move the industry into a cyclical upward range. China's two major state-owned enterprises engaged in oil transportation and ocean-going foreign trade transportation include China Merchants Shipping and COSCO SHIPPING Energy. We recommend focusing on: China Merchants Shipping and COSCO SHIPPING Energy.
.2 China Merchants Shipping: VLCC ranks first in scale, China Oil Shipping leads the central enterprises, and has high profitability
China Merchants Shipping Co., Ltd. China Merchants Shipping Co., Ltd. as the main sponsor, jointly China Petroleum & Chemical Corporation , China It is a joint-stock company jointly established by China National Petroleum Corporation, China Ocean Shipping (Group) Corporation, and China National Offshore Oil Bohai Company. As a leading company in the shipping sector, China Merchants Energy Shipping was established in 2004 and listed on the Shanghai Stock Exchange in 2006.
The company’s main business includes crude oil transportation, dry bulk transportation, LNG transportation, roll-on/roll-off transportation, breakbulk transportation, special cargo transportation, etc., forming an all-round business layout of “oil, bulk, gas and special”.The oil tankers and bulk carriers of are respectively operated and managed day-to-day by the company's two professional management companies, Haihong Company and Hong Kong Minghua, which are wholly owned by the company. The company also participates in LNG special ships through its subsidiary joint venture China LNG Shipping (Holdings) Co., Ltd. Transportation business.
The company's main business includes crude oil transportation, dry bulk transportation, LNG transportation, roll-on/roll-off transportation, breakbulk transportation, special cargo transportation, etc., forming a comprehensive business layout of "oil, bulk, gas and special". The company's oil tankers and bulk carriers are respectively operated and managed daily by Haihong Company and Hong Kong Minghua, two professional management companies wholly owned by the company, and participate in LNG special ship transportation through its affiliated joint venture China LNG Transportation (Holdings) Co., Ltd. business.
The actual controller of China Merchants Shipping is China Merchants Group Co., Ltd. , and the controlling shareholder is China Merchants Shipping Co., Ltd. China Merchants Shipbuilding holds 54.39% of the company's shares; the second largest shareholder is China Petroleum & Chemical Corporation, which holds 13.54% of the company's shares; the top two shareholders collectively hold 67.93% of the company's shares. In addition, the company has a total of 136 holding/shareholding subsidiaries and 12 associate/joint ventures. The business scope of the relevant subsidiaries is consistent with the company's main business, mainly focusing on ocean crude oil transportation, dry bulk transportation, LNG transportation, and roulette transportation. Carry out various businesses such as loading and transportation, live livestock transportation, and miscellaneous transportation.
The main operating model of the company's VLOC ships' bulk dry bulk business and LNG natural gas transportation business is based on long-term transportation contracts of more than 20 years. In this way, the return level is locked, and the freight rate does not follow the market fluctuations; in addition, the company is composed of Breakbulk transportation and special cargo transportation dominated by small and medium-sized oil tankers are significantly weaker than the large ship business in terms of transportation scale and small revenue fluctuations. Therefore, the company's main profit contribution comes from the VLCC oil tanker fleet business and freight rates. In 2008, the average annual freight rate of VLCC-TCE was US$97,000/day. This year, China Merchants Shipping's gross profit margin and ROE reached historical highs of 53.1% and 13.1% respectively; the next cycle high point will be 2015, VLCC- The average freight rate of TCE for the whole year was US$65,000/day. The gross profit margin and ROE of China Merchants Energy Shipping this year were 38.3% and 8.4% respectively. As the current round of oil transportation freight rates increases, the company's gross profit margin and ROE will also reach cyclical highs.
According to calculations, with other conditions remaining unchanged, the company's single-ship TCE transportation revenue fluctuates by US$10,000, the company's net profit attributable to the parent company will fluctuate by US$195 million, and the company's net profit attributable to the parent company in 2018 was only $170 million. Since freight rates are the direct determinant of the company's profitability, China Merchants Shipping's stock price and price-to-book ratio show a strong correlation with VLCC-TCE freight rates. According to our predictions, the current oil tanker industry is expected to usher in a three-year upward cycle. The cyclical high point of freight rates will be reached around 2022. The peak freight rates may be close to the 2008 level, which will lead to an increase in the company's overall profit center. .
.3 COSCO SHIPPING Energy: the world’s fourth largest VLCC ship owner and China’s largest oil product shipping company
COSCO SHIPPING Energy is China’s largest oil product shipping company and the world’s fourth largest VLCC ship owner. The company has established long-term transportation cooperation relationships with major refining and chemical companies along the coast and rivers, and is the largest coastal crude oil transportation supplier to major refining and chemical companies along the coast and rivers in China. The Group's main business model in the oil transportation business is to use its own and controlled ships to carry out production in various ways such as spot market chartering, time chartering, signing COA contracts with cargo owners, and participating in joint venture (POOL) operations. business activities. As of September 2019, COSCO Shipping Tankers has a total of 43 VLCC ships with a total shipping capacity of 13.11 million DWT, accounting for approximately 5.4% of the total global VLCC shipping capacity.
As the oil shipping industry is a highly cyclical and volatile industry, the company's performance is sensitive to tanker freight rates. , the operating income growth rate fluctuates cyclically with the oil transportation cycle. Affected by the recovery of oil tanker freight rates from low levels and the rebound in demand for crude oil in East Asia, the company achieved operating income of 7.138 billion yuan in the first half of 2019, a sharp increase of 39.5% year-on-year.Overall, the company's main business mainly consists of three parts: oil product transportation, dry bulk cargo transportation and other cargo transportation. Among them, oil product transportation is the core of the company's profitability, accounting for about 90% of revenue in the past three years.
The oil shipping industry is currently at the bottom of the major cycle, and the upward cycle is gradually established. On December 13, 2019, China and the United States reached an agreement on the text of the first phase economic and trade agreement, and China and the United States reached a phased agreement in the peace talks. On January 31, 2020, the sanctions on COSCO Shipping Energy's shipping capacity were lifted, and the lifted oil shipping capacity was immediately put on the market, which greatly enhanced the company's competitive advantage in coping with the subsequent oil shipping situation. At the same time, the company's foreign trade oil shipping business has high profit elasticity. We predict that for every increase in the market VLCC TCE freight rate of US$10,000/day, the company's profit is expected to increase by up to US$147 million. At present, the market’s pessimistic expectations about the epidemic have basically been realized. The daily rent of VLCC is close to the cost line, and there is limited room for further downside. As the oil transportation market continues to pick up after the epidemic, the company’s performance may exceed expectations.
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(Report source: Guosheng Securities)
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