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    DNB report says Southeast Asia is entering a bull cycle

    News // February 7, 2012

    DNB Markets has reinforced the impression that the OSV market in Southeast Asia is picking up.

    In its latest Asia Offshore sector report and quarterly preview, the company said: “We believe we are in the initial phase of what could be the next sector bull cycle. In our view, current market dynamics favour vessel owners, with a tighter market and lower pace of newbuild orders.

    “We are forecasting 6 per cent incremental demand growth in 2012, versus 5 per cent global fleet growth. Despite a strong share price performance this year, we argue that the sector risk/reward remains attractive.

    “Share prices in the Asia offshore sector have staged a recovery, up 14 per cent year-to-date,” said DNB, “outperforming the market gain of 10 per cent. Notably, all our top picks (these included STX OSV and owner such as Ezion and Jaya), have outperformed their peers, rallying by an average 22 per cent.”

    “Global utilisation rates in key markets are showing an uptick. In 2011, the market continued to absorb the excess tonnage, with improving demand dynamics. Utilisation levels stabilised at an average 76-79 per cent, and eventually started to tick up in the fourth quarter of 2011 and early-2012, supporting our thesis that 2012 could be the turning point for the OSV market,” DNB said.

    “Our bottom-up analysis of new OSV requirements suggests incremental demand for an additional 202 OSV vessels, or 6 per cent of the 2012 global fleet. We view this as a contributing factor to a tighter demand/supply balance, since we expect demand growth to exceed global fleet growth of 5 per cent in 2012.

    “The current situation favours vessel owners. There is always a risk that newbuild order flow could slow if current credit market tightness continues for an extended period of time, which could in turn be negative for yards – but work in favour of vessel owners.

    "As long as we do not see demand destruction, a relatively slower rate of OSV newbuild orders should reduce supply growth, providing a tighter market, in turn driving utilisation and day rates in the OSV sector,” DNB concluded.

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