RT @WSJAsia Oil-price collapse fuels Singapore layoffs https://t.co/9ZCyRALB9p pic.twitter.com/vavJmdppKU— GlobalAwareness101 (@Mononoke__Hime) March 17, 2016
Wall Street Journal
written by Jake Maxwell Watts and Saurabh Chaturvedi
Wednesday March 16, 2016
SINGAPORE — In Singapore’s worst year for layoffs since the global financial crisis, workers at offshore-marine companies were significant victims—a sign of how reeling oil prices have scuttled a key part of the country’s economy.
Singapore lost over 5,200 manufacturing jobs in 2015, 22% more than in 2014, with 1,680 of those lost jobs at companies producing fabricated metal products, machinery and equipment, including oil rigs. The island city-state is the world’s largest maker of jack-up rigs, or mobile platforms used to drill for oil at sea, and its economic growth is highly dependent on exports. Companies in the offshore-marine sector make rigs or the ships that service them.
The employment numbers released Tuesday fit into a global story of malaise across oil-related industries.
For Singapore’s rig builders, the biggest risks still lie ahead, many analysts say. Nearly half their orders are from Sete Brasil SA, a Brazilian rig supplier that is teetering on the edge of bankruptcy. It is linked to heavily indebted Petróleo Brasileiro SA, known as Petrobras, which is engulfed in a corruption scandal in Brazil.
“With underlying markets remaining extremely weak and expected to remain so in the medium term, the challenges are intensifying,” said Rahul Kapoor, director of equity research at Drewry Shipping Consultants. “Today, Singapore is at risk of being caught in the headwinds of China’s economic downturn.”
Economists expected the plunge in oil prices—down nearly 75% between mid-2014 and earlier this year—to benefit oil importers such as Singapore. Indeed, people did enjoy lower energy bills, but there were costs, too, felt at industries that rely on demand from the oil business.
In February, Singapore rig builder SembCorp Marine Ltd. reported its first quarterly loss and said that in 2015 it had let go between 3,000 and 4,000 workers, mostly foreign workers employed by subcontractors. According to the earnings statements, the company had focused on higher value-added products and diversified from oil-and-gas exploration into development and production.
Rival Keppel Corp. last year cut 17% of its directly employed workforce, about 6,000 people, the company said. It also eliminated 7,900 subcontracted jobs, including positions left vacant when contracts ended. Keppel last year cut its staff costs by 7.7% and material and subcontracting costs by 24%, compared with 2014.
Asked about the outlook for the offshore marine sector, a Keppel spokesman pointed to a statement the company’s chief executive, Loh Chin Hua, made after 2015 earnings were published at the end of January. The statement noted that Keppel had survived previous downturns, and said it had cut costs and was focusing on services still in demand, such as repair and conversion.
“Singapore’s dominance in certain segments of offshore and marine engineering is impressive,” said Joseph Incalcaterra, an economist covering Southeast Asia at HSBC in Hong Kong. But “this dominance risks becoming a liability as global oil and gas capital expenditure is set to decline for a second consecutive year.”
Mr. Incalcaterra estimates that oil-related manufacturing accounts for about 3.6% of Singapore’s gross domestic product. The Singapore government doesn’t provide its own breakdown.
As oil prices declined, the demand for oil rigs fell and oil-exploration companies cut capital expenditure. Many industry operators expect prices to stay low well into 2017 and possibly into 2018, according to Shekaran Krishnan, a partner at Ernst & Young.
“The steep and accelerated fall this time has strong impact throughout the value chain. At $40 per barrel, it is below [the] break-even point for most offshore operators,” he said. “There is no visibility to when the oil price slump will end.”
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