Monday, August 24, 2009

M'sian shipping, aviation recovery may take 2 years

MIMB Investment Bank expects the second half of this year to be tough for the Malaysian shipping industry, mainly due to worldwide excess vessel capacity, which would continue into 2010.

"Although the phasing out of single hull vessel ruling will only come into force in 2010, we think that the imbalance in supply and demand will take time to correct itself," its analyst Rosnani Rasul wrote in a report dated June 29.

The phasing out of single hull vessels under the International Maritime Organisation (IMO) regulations will see some 35 per cent of global vessels cease operations in major trading routes.

Rosnani said that with the exception to dry bulk shipping, the situation in other shipping segments, including tankers and chemical, have not improved in the first half of this year (1Q09).

"In fact, most shipping players in the world, including local firms, have recorded significantly lower 1Q09 earnings, no thanks to weak demand which was exacerbated by excess capacity," she added.

During the booming year in 2007, most shipping companies rushed to add new buildings, which resulted in significant number of new ships entering the global market.

As a result, the number of order book as a percentage of dead weight tonnes reached a staggering 60 per cent for some, like chemical. This has weakened shipping rates to a record low and made some companies operate at below their operating cost, said Rosnani.

As for the airline industry, she said some airlines are still trapped in expensive jet fuel cost hedging, no thanks to the spike in crude oil price last year.

Some still have to purchase their crude oil at US$100 (RM357) per barrel compared with the average of US$43 (RM153.51) per barrel in 1Q09.

"With the ongoing threat of the influenza A (H1N1) flu, coupled with expensive fuel hedge value, the airlines industry may face a tough time ahead.

"This will be exacerbated by the prolonged weak demand following the slow recovery in global credit crisis," said Rosnani.

She foresees some improvement on the card only in the second half of 2010 when stabilisation in crude oil price will play an important role.

"Most countries in the world are likely to record positive gross domestic product growth by then, and hence, will be a precursor to the recovery in air travel," she added.

In view of the gloomy economic outlook, MIMB Investment Bank has reiterated its "underweight" call on the transportation sector, and predicts that the recovery period for the shipping and aviation sectors may take up to two years.

Source: Business Times

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