Cosco Chairman: Nobody left unscathed by oil market debacle

China’s Cosco, a company building drilling rigs and ships, has, as almost all of its peers, been impacted by sliding oil prices and slowing global economic growth in 2015.

In a message to shareholders, reviewing the company’s performance in 2015, Chairman Wang Yu Hang said overcapacity and unceasing rising costs had made it even more challenging for shipyard operators to achieve the desired bottom line.

Most of the players in the offshore marine and related industries have not been able to escape unscathed from the oil market debacle, Wang Yu Hang said.

Cosco’s turnover for the year under review declined 17.4 per cent to $3.5 billion from $4.3 billion in the previous financial year. The Group suffered a gross loss of $214.8 million in FY2015 from gross profit of $291.0 million in FY2014.

Net loss was $570 million compared to net profit of $20.9 million for the previous year.

The Chairman attributed the loss to the continuing depressed state of crude oil prices that has severely affected the global offshore marine industry, the slump in the shipbuilding market that has negatively impacted the Company’s shipyards; and the languid dry bulk shipping market that has put great pressure on the Company’s dry bulk fleet business.

In 2015 Cosco secured $820 million in new orders, down from $1.6 billion in 2014.

The company last year delivered nine bulk carriers, six platform supply vessels, two semi-submersible accommodation vessels, two anchor handling tug supply vessels, one floating accommodation unit and one oil tanker.

In 2015, orders were obtained to build seven containerships, two cargo transfer vessels, one research vessel, one module carrier, one tanker assist / emergency response / rescue / field support vessel, two oil tankers, one shuttle tanker, one product oil tanker and one FPSO conversion.

Speaking about the future, the Chairman said there is “a multitude of downside risks facing the offshore marine, shipbuilding and shipping industries – the core markets where we operate.”

Among those are cuts in upstream capex by oil and gas majors, which spill over badly into the shipbuilding sector.

“As oil companies struggle to stay afloat, we expect to see further budget cuts, project deferments and order cancellations across the offshore marine industry,” Cosco chairman said.

Niche to the rescue?

On the cancellations and delays of orders, Wang Yu Hang said if approached with such requests from clients Cosco was open for discussion.

He said: “…If our clients approach for any discussions on rescheduling, we are prepared to co-operate and work together with them to reach an amicable solution, without sacrificing the commercial interests of our company. We will focus on strengthening the ties with our existing clients to tide through this time of adversity.”

While the general market is challenging in the near term, the chairman said Cosco believes there will still be niche demand in the market for offshore construction vessels, floating production units and underwater construction units.

“We need to focus our marketing efforts and channel our resources to capture such opportunities and further diversify our portfolio for the future,” he said.

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