It’s all downhill from here for Singapore’s largest rig builders

Big threats remain even if oil prices recover.

The oil price downturn is the most obvious culprit behind Singapore rig builders’ current woes, but analysts at Barclays warn that local shipbuilders will have difficulty returning to their former glory even if oil prices do recover.

This is because there has been a significant increase in competition from newer regional players, particularly aggressive Chinese yards.

“Chinese yards have gradually moved up the learning curve and increased their market share, increasingly posing a bigger threat to traditional market leaders in Singapore and Korea. The recent weakness in oil prices and the wave of new builds entering the marketing in the next 24 months is likely to prevent any hopes of a recovery in rig orders in 2015, in our view,” Barclays said. 

“However, we believe a more structural concern is the change in the competitive landscape for rig-building, which is likely to place pressure on profitability and margins for established market leaders like Keppel Corp and Sembcorp Marine in the medium term,” the report noted. 

Despite these threats, Barclays believes that Keppel Corp remains the best placed to weather this structural change, through its dominant jackup market share, and network of global yards which should help to increase the ‘stickiness’ of its NOC client base.

“Whilst we are now less optimistic towards the rig-builders, we believe that Keppel Corp should remain the more resilient of the two companies. Keppel’s stronger market positioning through its leadership in the jack-up markets, its larger network of international yards (tied to the offshore development of various countries) and its historically more stable margin and execution should also see the company delivering a better and more sustainable return profile to shareholders in the medium-term, in our opinion,” Barclays said.

Photo from Keppel Corporation.