Prior to the Swiber fallout, a friend asked me for my opinion on Sembcorp Marine. He was thinking of accumulating the shipyard's shares, which is at the lowest in its history, in anticipation of a sudden swing upwards when oil price recovers. I told him to wait it out as the market is correcting. Upside is marginal but downside is significant, unless you are hoping for a privatisation. It is the survival of the fittest in the O&G space. Clients are not paying and there is no demand for drilling rigs, which is in oversupply. I agree that there is always a possibility of recovery, but as the shipping (NOL), commodities (think Noble and WIlmar) and property markets have shown us, the downturn is long and painful. Gravity applies.
About a year ago, I warned readers not to buy shipbuilders and services companies. I said:
Any uptick in oil prices may not increase the demand for new vessels given a surfeit of them. For the services company, competition may prevent day rates from recovering to pre-crisis levels.
Personally, I feel that the worst of the sector has yet to come. No one really knows how long oil prices will remain low. I guess that there will be consolidation in the market as some of the E&P, shipbuilders and services companies face financial difficulties. That is another story altogether.
This would have saved you huge amounts of money and from heartaches.
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