Guotai Haitong Securities Co., Ltd. has released a research report stating that in Q2, demand was constrained by strait blockages, with trade disruptions driving high tanker freight rates. Currently, VLCC Time Charter Equivalent (TCE) rates on core routes remain above $100,000 per day, significantly higher than the average rates over the past two decades and the 2025 average. Due to supply-side factors in the tanker market, high market conditions are expected to persist for several years even without geopolitical conflicts. If sanctions on Iran are lifted, compliant oil transport demand is projected to increase by 5%. With the size of the fleet under 20 years old remaining rigid for the coming years, the compliant market is poised to achieve a super-cycle that could last several years, opening up room for valuation expansion. The main points from Guotai Haitong Securities are as follows:
Analysis of the Tanker Shipping Sector
In late February 2026, the US-Israel-Iran conflict erupted, with the Strait of Hormuz being blocked from March to May. It is estimated that crude oil seaborne exports from the Middle East (including Yanbu port) were reduced by more than half, and global seaborne crude oil volume (in tons) shrank by over 10%. Exports from the US Gulf and South America increased by more than 30%, with longer voyage distances partially offsetting the impact, but a gap remains in global oil shipping demand (in ton-miles). In the initial phase of the conflict, factors such as war risk premiums, preemptive shipments, and regional supply-demand imbalances drove the average freight rates to historically high levels. As the disruptions gradually eased, freight rates retreated from May. It is estimated that during the Q2 earnings period (corresponding to March-May freight indices), the average VLCC TCE on US Gulf/West Africa/Middle East Yanbu to Asia routes reached $120,000-$140,000 per day, up from $110,000 per day in Q1. Currently, VLCC TCE on core routes remains above $100,000 per day, significantly exceeding the long-term average and the 2025 mean.
Performance of Key Companies
China COSCO Shipping Energy Transportation Co., Ltd. (ASX: N/A) reported that Q2 earnings doubled year-on-year, with further potential for Q3 growth. The company's preliminary report estimates a first-half 2026 net profit attributable to shareholders of RMB 4.5 billion, a 141% year-on-year increase. Specifically, Q2 net profit was RMB 2.3 billion, doubling year-on-year and rising 7% quarter-on-quarter. 1) International Oil Shipping: Following the navigation obstruction in the Strait of Hormuz since late February, Kpler data indicated that eight of the company's tankers were stranded inside the Gulf, leading to operational day losses in Q2. The company promptly adjusted routes, actively capitalized on high-rate opportunities, and its fleet outside the Gulf is estimated to have achieved higher operational efficiency than the industry average, fully benefiting from the strong market. By late June, all stranded tankers had safely exited. It is expected that the operational efficiency of the company's tanker fleet will recover to a high level in Q3, with profits likely to continue increasing sequentially. 2) Domestic Oil Shipping: Profitability in this segment is relatively stable, but high oil prices and reduced trade in Q2 may have temporarily pressured operations. With declining fuel costs and improving trade, domestic oil shipping profitability is also expected to improve quarter-on-quarter in Q3.
China Merchants Energy Shipping Co., Ltd. (ASX: N/A) reported stronger-than-expected Q2 growth, benefiting from dual high markets in tanker and dry bulk shipping. The preliminary report estimates a first-half 2026 net profit attributable to shareholders of RMB 6.6-7.3 billion, a 214%-248% year-on-year increase. Q2 net profit was RMB 3.8-4.5 billion, increasing more than twofold year-on-year and 40%-60% quarter-on-quarter, exceeding market expectations. 1) Tanker Shipping: Amidst the Q2 strait obstruction and trade disruptions, the company's fleet maintained high utilization, with flexible deployment and fleet advantages facilitating deals at high rates. Tanker fleet profit in Q2 is estimated to have increased 50% quarter-on-quarter, with VLCC TCE exceeding $140,000 per day, above the industry average. 2) Dry Bulk Shipping: Q2 saw continued supply-demand improvement, with the Baltic Dry Index (BDI) average up 87% year-on-year. Active Australian ore shipments and a weaker-than-usual impact from Brazil's rainy season drove the Baltic Capesize Index (BCI) average up 95% year-on-year. Surging oil prices boosted Asian coal demand, with the Baltic Panamax Index (BPI) average rising 62% year-on-year. Dry bulk fleet profit in Q2 is estimated to have surged approximately 170% quarter-on-quarter.
Market Outlook and Investment Implications
1) The tanker market has entered a "super-cycle" in two phases from 2022-2025. The fleet is aging at an accelerated pace over the next five years, and tight shipyard capacity ensures the "supply bottleneck" persists. Even without geopolitical conflicts, high market conditions are expected to last for several years. 2) Recent US actions may aim to pressure Iran to relinquish control demands over the strait. The firm believes this does not alter the medium-term trend of strait recovery. If the strait reopens, tanker capacity utilization will return to high levels, with inventory replenishment and long-haul control further enhancing the positive outlook, ensuring high profitability in 2026-2027. 3) If sanctions on Iran are lifted, compliant oil transport demand is projected to grow by 5%. With the size of the fleet under 20 years old remaining rigid for the coming years, the compliant market is poised to achieve a super-cycle that could last several years, opening up room for valuation expansion. Dividends support the valuation floor. The report emphasizes the importance of non-pulse investment opportunities and recommends China COSCO Shipping Energy Transportation / China Merchants Energy Shipping / China Merchants Nanjing Tanker Corporation / China Shipbuilding Leasing.
Key Risk Factors
Risks include geopolitics, economic conditions, slower-than-expected retirement of older vessels, and the implementation of environmental regulations.
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