Mitsui OSK Lines (MOL) will be a key beneficiary of a prolonged LNG upturn amid rising demand in Asia, a leading regional analyst has forecast.
“Its increased capabilities and increasing focus across the LNG transportation supply chain will allow MOL to seize high-yielding investment opportunities, helping to diversify revenue and its earnings profile,” said Bloomberg senior transport industry analyst Rahul Kapoor.
“LNG carriers and associated businesses will be MOL’s key growth engine as it channels its maritime-business portfolio towards sustainable earnings.”
Given its strong LNG shipping expertise, Kapoor believes that MOL will benefit from venturing into the FSRU segment, which “opens a new revenue stream”.
“MOL has identified businesses associated with LNG as focus areas and is targeting LNG fuel-supply ships, floating LNG power plants and offshore segments,” he said.
Kappor said that while these businesses lack the scale compared to its traditional shipping portfolio, they are poised for strong future growth.
“MOL will increase capital expenditure in its LNG and associated segments, with the aim of boosting its share of recurring profits,” he said.
“LNG carriers and offshore units will be at the top of the company’s investment plans and get upwards of 30% of the total capital outlay.”
Kapoor said medium-to-long-term freight contracts provide “much higher revenue and profit visibility” and give protection against the volatility seen in its conventional shipping earnings.
He said the company’s recent agreement with Swan LNG to build and operate India’s first FSRU signals “expansion into frontier markets”.
Looking ahead, Kapoor said LNG imports from top buyers China, Japan and South Korea should “inch higher” in coming quarters aiding vessel demand.
“We expect summer demand to start filtering into the spot LNG market and see firmer Asian imports in the late second and third quarters,” he said.
“A warm winter in Asia and sufficient LNG inventory buildup in late 2018 led to LNG shipping demand flat lining in the first quarter compared to a year ago and also sequentially lower than the fourth quarter of 2018.
“Nuclear power plants starting up in Japan and South Korea also negatively impacted import demand in the first quarter with imports declining 19% and 9%, in those countries, while China’s imports grew 21%.”
Kapoor said LNG’s clean-burning properties ensure its worldwide demand will keep rising, with China’s surging imports leading the way.
“Long-term LNG demand drivers continue to signal favourable sector fundamentals are likely to last for several years,” he said.
“We see multiple catalysts ahead, including rising US exports, surging Chinese demand, higher arbitrage, and trading opportunities driving vessel demand and underpinning strength in freight rates.
“LNG is becoming increasingly tradeable, with buyers swapping cargos and re-exporting committed volumes as they push to gain from price arbitrage.”