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| Hyundai Heavy Industries' shipyard in Gunsan, North Jeolla Province, is seen in this file photo. Analysts say that shipbuilders will benefit from rising oil prices. / Korea Times file |
By Yoon Ja-young
Amid increasing volatility in the stock market stemming from growing geopolitical tension around Syria, analysts cite airlines as the biggest victim of the rising oil prices while oil refiners, shipbuilders and stocks focusing on the domestic market will fare relatively well.
Global oil prices have been rising steeply over the past few weeks due to risks stemming from Syria. Though the country's oil production is less than 20,000 barrels a day, which is too small to affect the market, its major oil producing neighbors such as Saudi Arabia, Iraq and Iran make up over 60 percent of the oil production by the Organization of Petroleum Exporting Countries (OPEC). And tension is increasing as Iran and Russia are supporting the current regime while Saudi Arabia and allies of the United States are against it.
"Global oil prices have already been in the $60 band due to the continuing consensus among OPEC members to decrease production, led by Saudi Arabia and Libya. The increasing geopolitical risks will further pull up prices," said Kim So-hyun, a commodity analyst at Daishin Securities.
She added that oil production by OPEC may fall below half of its targeted 1.75 million barrels if the conflict in the Middle East gets as bad as it was when countries led by the United States fought against the Islamic State terrorist group.
Lim Jae-kyun, an analyst at KB Securities, said that oil prices will continue rising as Saudi Arabia has a strong motivation to boost oil prices. "Saudi Arabia wants higher oil prices for the successful listing of Aramco on the bourse," he said, expecting West Texas Intermediate to continue rising to $75 per barrel by the end of this year.
A steep hike is worrisome as most businesses have set up plans based on estimation that oil prices will be stable at around $60 per barrel. Typically, airlines are the biggest victim of rising oil prices, according to analysts. Korean Air dipped 6.55 percent on the bourse Thursday, though it rebounded by 1.19 percent the next day. Asiana Airlines also fell 2.75 percent Thursday, followed by a 0.71 percent rebound the next day. Low cost carrier Jin Air dipped over 8 percent during the last three trading days.
Oil refiners, meanwhile, can benefit from rising prices. As the value of the crude they have stocked rises, their operating profit can also increase.
Jung In-ji, an analyst at Yuanta Securities, also cited shipbuilders as beneficiaries.
"Generally, shipbuilding shares gain momentum during global oil price hikes on expectation that they will get more orders for offshore plants. Local shipbuilders will get more spotlight amid the hike, following a request for a proposal that Hyundai Merchant Marine sent them last week," he said. The shipper's plan to order 20 container ships gave fresh momentum to local shipbuilders that have been going through years of restructuring.
Lee Sang-woo, an analyst at Eugene Securities, also expected increasing orders for offshore plants. "The acceleration of offshore energy development is the biggest issue to lead the shipbuilding industry in 2018," he said.
Daewoo Shipbuilding and Marine Engineering closed at 27,600 won Friday, doubling from its closing price of 13,900 won last year. Hyundai Heavy Industries closed at 129,000 won, which compares with 100,500 won last year.
Kim Yong-gu, an analyst at Hana Financial Investment, however, pointed out that oil refiners fell 0.4 percent during the "Arab Spring" despite a 36 percent hike of Dubai Crude.
"While a gradual rise in oil prices based on demand leads to higher valuation of oil refiners' assets and businesses, too steep a hike triggered concern that demand for oil products will fall."
He thus expected stocks that are not sensitive to oil prices to get more spotlight on the bourse. "IT and automobiles, stocks based on domestic market or those of Kosdaq and small growth shares may be the haven in case of heightening risks in Syria."
