1. What affected the performance in FY2015?
The continuing depressed state of crude oil
prices, the slump in the shipbuilding market
and the languid dry bulk shipping market have
brought great pressures to the Company’s core
businesses.
Fragile economic conditions had severely weighed
down oil prices and consequently, operations of
many drillers, operators and offshore builders.
Many yards in our industry faced the harsh realities
of project rescheduling and contract cancellations.
Our marine engineering segment had not been
spared.
The Company’s shipyards incurred higher costs
for a few delayed projects as well as significant
write-downs of certain inventory and provisions
for impairments of trade receivables for contracts,
which are deferred or may potentially be cancelled.
Our performance continues to suffer from the
cut in deployment of equipment for offshore oil
exploration and production, and the overhang of
surplus tonnage of bulk carriers.
With capital expenditure in the global oil and gas
industry being curtailed, it was inevitable that
newbuild orders were limited.
2. With the market expected to remain
depressed in 2016, what are the main downside
risks for the year?
The International Monetary Fund (IMF) in its World
Economic Outlook released on 19 January 2016
had aptly reported that “risks to the global outlook
remain tilted to the downside and relate to ongoing
adjustments in the global economy: a generalised
slowdown in emerging market economies, China’s
rebalancing, lower commodity prices, and the
gradual exit from extraordinarily accommodative
monetary conditions in the United States. If these
key challenges are not successfully managed,
global growth could be derailed”. Further, the
World Bank had in January 2016 lowered forecasts
for 37 out of 46 commodity prices, and said that
“low prices for oil and commodities are likely to be
with us for some time”.
There is a multitude of downside risks facing
the offshore marine, shipbuilding and shipping
industries – the core markets where we operate.
According to industry estimates, the drastic drop
in oil prices since 2014 had led to upstream capital
expenditure of about US$540 billion (public listed
oil companies) in 2015, which represents an
approximate 25 per cent drop from 2014. Capital
expenditure deferments, headcount paring and
many drastic cost cutting measures have become
increasingly ubiquitous among the oil majors. As
oil companies struggle to stay afloat, we expect to
see further budget cuts, project deferments and
order cancellations across the offshore marine
industry.
Key Messages
19
COSCO Corporation (Singapore) Limited
Annual Report 2015
