China Shipping Development: Floating Storage For Cheap Oil, HSBC Upgrades to Buy

Lower oil prices may well provide a boost to the crude oil shipping business – or at least HSBC thinks so.

Accounting for almost half of China Shipping Development‘s revenue, the crude oil tanker business has been bleeding cash over 2011-2013, particularly on the international routes where gross margins have fallen to as low as negative 20%’s. But the margins seem to have stabilized a bit in the first half of 2014.

First, shale gas production in North America is torpedoed by a flood of cheap crude imports from the Middle East. In a battle for global market share, Saudi Arabia this week lowered its February selling price to the US. In this case, Americans will have to import oil again and crude oil shipping companies can gain.

The recent rally in tanker rates has happened alongside a simultaneous sell-off in crude oil. A more plausible explanation for higher rates could be the increase of tankers for offshore or floating storage of crude oil.

In the last three months, this stock has risen 14.5% as the Brent crude fell by almost half. China Shipping Development closed at HK$5.61 on Tuesday. HSBC’s price target implies a 17% upside.

( hellenicshippingnews.comb  Edited by Topco)