CITIC SEC: Concentration of VLCCs increases, reshaping freight rate mechanism, with the potential for record profits for leading oil transporters by 2026.

CITIC SEC released a research report stating that valuation and structural opportunities on the oil shipping side and asset side are expected to continue, and the supply chain restructuring brought about by geopolitical conflicts has become the core driver of this oil shipping cycle. The rapid expansion of Sinokor's capacity has led to a unprecedented increase in concentration on the VLCC supply side in this cycle, with the potential to form a pseudo-alliance with MSC and Trafigura, setting a precedent for "suspended voyages to support prices" in the oil tanker market during certain periods. Compared to the container and dry bulk markets, the VLCC market is relatively small, and trends such as "pseudo-alliances" and "suspended voyages to support prices" are more pronounced and lasting in reshaping the freight price mechanism. Against a backdrop of geopolitical factors, events such as the Iran incident have strengthened the momentum of the oil shipping industry cycle, with the 2026 profits of leading oil shipping companies expected to reach new highs. CITIC SEC's main points are as follows: Emphasizing once again the importance of the increase in VLCC concentration, which reshapes the freight price mechanism, the increase in concentration and the prosperity of time-charter rates mutually promote each other. The rapid expansion of Sinokor's capacity has led to an unprecedented increase in concentration on the VLCC supply side in this cycle, with the potential to form a pseudo-alliance with MSC and Trafigura, setting a precedent for "suspended voyages to support prices" in the oil tanker market during certain periods, reaffirming the importance of "reshaping the freight price mechanism". The expansion of VLCC capacity through the purchase of second-hand vessels and time-charter leasing locks Sinokor's position as the largest VLCC capacity pool in history. The industry's supply side is evolving from a fragmented market to a "quasi-alliance" structure, with significantly enhanced bargaining power. In terms of profitability, changes in the freight price mechanism could lead to significantly higher profits, with one-year lease rates already exceeding $110,000 per day. Currently, Sinokor controls nearly 25% of the compliant operating market, and the surplus income brought about by the rising freight rates also supports the concentration increase. In the context of strong constraints on the VLCC supply side, the trend of "pseudo-alliances" has become an important support for the outbreak of the oil shipping cycle. With the significant expansion of capacity during the cyclical prosperity period, the beta effect is magnified: benefiting from China's large infrastructure cycle, the BDI index soared from 882 points in 2002 to 11,793 points, with TMT's controlled capacity growing from 12-15 ships to around 105 ships by 2008, ultimately leading to profit growth. Reviewing TMT's path of capacity expansion, in 2002, TMT completed a management handover, with the new management judging that after China's entry into the WTO, demand for dry bulk cargo was expected to surge, leading to an expansion in scale. In 2002, the average BDI was only 1138.6, at a historical low. In 2003, benefiting from the rapid development of China's real estate industry chain, iron ore imports and crude steel production grew rapidly, with China's iron ore imports rising by 32.9% and crude steel production by 21.9% in 2003. TMT identified the opportunity and began to expand Capesize capacity, ordering 5/15/20 Capesize vessels in 2004/2005/2006 respectively. According to Clarksons data, global demand for dry bulk cargo increased by 4.5%/9.4%/8.4% in 2005/2006/2007 respectively, ultimately pushing the BDI index to its highest level of 11,793 points in 2008, a 12-fold increase from the 882 points at the beginning of 2002. In this round of the dry bulk cycle, TMT also completed a significant expansion of its capacity, with the Capesize fleet growing from zero to 42 ships, and the Panamax fleet growing from 1 ship to 35 ships through self-building and leasing, with TMT's controlled capacity growing from 12-15 ships to around 105 ships by 2008, a sevenfold increase. Focus on marginal changes in the passage of the Hormuz Strait, where short-term adjustments to the supply chain may lengthen voyages, and once the situation eases, the demand for replenishment stocks may also become a catalyst for the upturn in the cycle. According to ShipVis data, the number of vessels passing through the Hormuz Strait from March 12th to 16th was 4/2/6/7/7 ships (compared to 127 ships on February 27th), indicating a blockage in the transit of the Hormuz Strait. The bank estimates that the normal throughput of the strait is 15 million barrels of oil per day, considering the shipping capacity of Bandar Abbas and Kharg Island, there may still be a shortfall of 6-7 million barrels per day or more. The volume of crude oil flowing through the Hormuz strait to China/India/Japan/South Korea accounts for 46.1%/43.5%/66.9%/61.8% of their respective imports, and with the short-term release of strategic reserves and adjustments to the supply chain to mitigate some of the impact, Longer voyages are likely, with Bandar Abbas experiencing an 18% increase in voyage distance and an increase of over 30% in the Persian Gulf. Also, pay attention to the demand for "restocking" once the medium-term passage capacity is restored, and if congestion in capacity occurs during this process, the cyclical upturn is expected to be prolonged. Risk factors: Significantly increasing VLCC capacity; downstream restocking demand falling short of expectations; Sinokor's capacity expansion falling short of expectations; geopolitical conflicts changing beyond expectations.