Shipbuilders brace for choppier seas after dismal first quarter results

Q1 was a harbinger of tougher times ahead.

Shipbuilders in the oil and gas industry are in for choppier seas ahead after a dire set of first quarter results, a report by OCBC Investment Research revealed.

OCBC analyst Low Pei Han and Andy Wong noted that poor Q1 results are just a "harbinger of more challenging times ahead", as utilisation rates sink and new orders dissipate.

"Market sentiment has to improve first, before asset owners are confident to order newbuilds. This applies for the rigbuilders as well. With offshore drillers like Transocean seeing low utilisation rates and scrapping their fleet, newbuild rig orders have trickled down to zero. Instead, requests for delays in delivery have surfaced and some have been agreed upon with customers," they noted.

They noted that while oil and gas stocks rallied when oil prices rose in early April, most of the gains have fizzled out since then.

"Despite oil price being on an uptrend since Feb, the FTSE Oil and Gas index has not been able to mount a recovery, likely because the market is still not convinced of a sustained uptrend in oil prices. ‘Low for longer’ is still a view widely held by many industry players, though many think that oil price will eventually recover,” they said.