The past is history and the future remain a mystery. Would Sembcorp Marine continue to fulfil its destiny as the world no.2 oil rig builder or would it collapse in style? Sembcorp Marine share price is set for a roller-coaster ride as the company faces yet another explosive full-year loss for FY2018. The last time Sembcorp Marine reported an annual loss was in FY2015, which saw it recording a massive loss of $289 million.
For sure, the winter had lasted longer than expected. It has been four years since Sembcorp Marine share price was trading at $4.00. Currently trading at $1.66, Sembcorp Marine share price is a shadow of its former self.
Although Sembcorp Marine is operating in a cyclical industry, there is no guarantee that the share price would restore to its heyday form. Should investors throw in the towel or keep faith with the management? In my view, I fear the worst for Sembcorp Marine share price if things do not improve in the coming quarters because of its grim financial data. In this regard, investors should brace themselves for a potential meltdown of Sembcorp Marine share price.
A whole new world
On looking back, 2018 has proven to be another false dawn for Sembcorp Marine as recovering oil price has not revived the global demand for new oil rigs.
According to data from the Baker Hughes website, the number of rigs in worldwide peaked at 3578 in 2014. However, since the start of the oil slump, the number has collapsed to 1400 in 2016. We are now approaching the end of 2018, and the number of rigs stands at 2271. Based on the data, it shows that the demand for new oil rigs is expected to be soft moving forward but is gradually picking up.
As a matter of fact, oil price has surged from a low of USD28 per barrel in 2016 to the recent USD70 per barrel. Then in April, following the award of the Shell Vito FPU (floating production unit) hull and living quarters contract, Sembcorp Marine share price stormed to a high of $2.28 on 22 May 2018. On the basis of that bullish form, many investors were convinced that Sembcorp Marine has seen light at end of the tunnel.
But reality started to sink in as the recovery in oil price has not translated to an equivalent increase in new oil rig orders. This is because most major oil companies are still cautious in their capital expenditures as major economies are slowing down. United States has also emerged to become a leading oil exporter through its shale oil supply, disrupting the global balance of demand and supply.
To exacerbate the problem, there is currently a supply glut of oil rigs in the global market. Against the backdrop of sluggish global economy growth, demand for new oil rigs is expected to be weak in the next two years.
Volatile Sembcorp Marine share price
With a 5-year beta of 1.177, Sembcorp Marine share price is certainly volatile. Since 3 October 2018, Sembcorp Marine share price [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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