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COSCO Corporation (Singapore) Limited
“Moving forward, we will continue to focus on the
improvement of our productivity and cost control
measures. We will also exercise greater prudence
to ensure that business risks are continually better
managed to further support the sustainability of the
Group.”
Message from
the CHAIRMAN
Key Messages
Volatile Market Conditions To Persist
Slowing economic growth from the beginning of 2014
dampened the marine engineering business, and the
sharp fall in oil prices from the middle of the year under
review compounded the situation.
Brent Crude had collapsed by about 60% from a high of
US$115 per barrel to below US$47 per barrel in January
2015 following continued slowdown in demand growth
and record increase in non-OPEC supply. In February
2015, it recovered to around US$60 per barrel. Markets
have yet to feel the full impact of the oil price plunge and
the wider implications for inflation, currencies, business
costs, as well as government finances and the global
economy.
In an update of its World Economic Outlook in January
2015, the International Monetary Fund (IMF) lowered its
global growth forecast for 2015 by 0.3% to 3.5%. It said
the net benefit of the sharp decline in oil prices would
be more than offset “by persistent negative forces,
including the lingering legacies of the crisis and lower
potential growth in many countries”.
IMF projected growth in advanced economies to rise
to 2.4% in both 2015 and 2016, but observed “the
increasing divergence between the United States, on the
one hand, and the Euro area and Japan, on the other”.
For the emerging markets and developing economies, it
forecasted growth to remain broadly stable at 4.3% in
2015 and expected that to rise to 4.7% in 2016, lower
than its earlier forecast in October 2014.
The International Energy Agency (IEA), in its February
2015 Oil Market Report, expects the global oil market
over the next few years “to begin a new chapter in its
history” and foresees “prices stabilising at levels higher
than recent lows but substantially below the highs of the
last three years”.
There have also been reports that energy firms in
the Middle East and the United States have begun
demobilising drilling equipment, cutting capital spending
and jobs and restructuring their debt. New orders for
2015 from the marine engineering segment may not look
promising. Yards are likely to face the risks of buyers
delaying project deliveries and even cancellations if the
price of oil does not recover meaningfully in 2015.
The massive decline in oil prices is expected to have
significant repercussions on offshore exploration activity
and could severely impact our marine engineering
business, which accounts for a sizeable proportion of
our turnover.
Even with lower oil prices expected to drive improvement
in world trade, the global dry bulk shipping market
remains in overcapacity. Together with an expected
credit squeeze for the shipbuilding sector, we are also
very concerned about orders for dry bulk vessels going
forward.
In the light of challenging economic and business
conditions, COSCO continues to maintain a cautious
outlook going into 2015.
