Here's why the oil price rebound will not help distressed shipbuilders

Contract wins will remain few and far between.

Shipbuilders will struggle to stay afloat despite the recent uptick in oil prices. Although Brent crude has recovered from a low of USD 228 per barrel in mid-January to almost USD50 per barrel, analysts caution that the outlook for shipbuilders remains bleak as oil majors are unlikely to hike spending anytime soon.

A report by Maybank Kim Eng highlighted that oil companies are still focused on completing cost reduction adjustment plans in order to cope with a lower oil price environment.

"Unless there is further recovery and stronger confidence on oil price sustainability, there is little hope for a positive change in activities in 2016. We remain bearish after going through [international rig and OSV owners'] outlook as most do not
expect a meaningful recovery in activities before 2017," the report said.

The report noted that the jackup market will continue to deteriorate due to excessive supply. Meanwhile, floaters are expected to have the worst fate in the current downturn, as more 6th-generation floaters are being marketed for sale.

"We believe that the lagged effect between oil price and return in activities will be more pronounced in this round of recovery. Investors should disconnect oil services players’ stock price with oil price as there are no visible signs that the recent oil bounce would filter through to earnings opportunities yet. Instead, we suspect asset impairments are not all done, and could persistently upset share prices in the next few quarters,” Maybank Kim Eng said.

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