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Malaysian yards see quicker recovery for tugs, continuing weakness for offshore projects

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Despite recovering oil prices, some segments of Malaysia’s oil and gas (O&G) industry have yet to recover and continue to see a muted outlook for the year ahead.

Among the recent crop of interim results, offshore focused shipyard TAS Offshore and marine fabricator and shipyard Malaysia Marine and Heavy Engineering (MMHE) both alluded to higher activity levels in the O&G industry but while the former was mildly upbeat, the latter did not see improvement in prospects till 2019.

“The overall outlook for the second half of the year is not expected to show much improvement as market recovery continues to be slow and any meaningful opportunities can only be materialised in 2019,” said MMHE md and ceo Wan Mashitah Wan Abdullah Sani in a press release.

“The output cuts initiated by OPEC since 2017 have accelerated the oil market rebalancing and led to an oil price recovery to above $70 per barrel. The sustained oil price recovery will eventually translate into higher capital expenditure spending by the O&G players in the coming years. While there is a growing optimism for an increase in offshore activities, these have yet to trickle down to real opportunities for the Heavy Engineering segment. As such, the Heavy Engineering segment performance is expected to remain under pressure in 2018,” she added.

On the emerging liquefied natural gas (LNG) trend, Wan Mashitah cautioned that “the opportunities stemming from final investment decision in new LNG projects and expansions to existing LNG projects are not expected to bear fruit immediately”.

Read More: MMHE aiming for $907m in new jobs this year

Meanwhile TAS Offshore also pointed to $70 per barrel price level of oil as a sign of better conditions ahead. “Amid the improving O&G industry climate with higher activity levels, industry players (have) become more optimistic on the prospects of a potential surge in new orders for offshore support vessels,” it said in a stock market announcement.

The Sarawak-based ship builder was also upbeat on the market for tugs and barges in the Indonesian coal industry. “The positive outlook for coal mining industry in Indonesia is expected to spur demand for more tugboats and our Group is looking forward to reap further benefit from this development,” TAS Offshore said, concluding that “we are optimistic about our prospects”.

As a result, it turned around from a MYR14.7m ($3.6m) loss in the previous corresponding quarter to a MYR719,000 profit in the second quarter ended May 31, 2018. This was achieved on the back of a 2.5 times spike in revenue due to the sale of tugboats to MYR18.9m compared to the preceding quarter ended February 28.

In contrast, MMHE’s second quarter losses widened to MYR49.5m from MYR13.7m previously.