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Updated Saturday, June 25, 2011 11:27 pm TWN, CNA

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Transport stocks rise after oil price drop

TAIPEI -- Shares of transport stocks gained yesterday, bucking the downtrend on the broader market, as crude oil prices plunged after the International Energy Agency announced a release of 60 million barrels from strategic stocks, dealers said.

West Texas Intermediate (WTI) light crude for August contracts fell 4.6 percent to US$91.02 per barrel overnight in New York, while Brent North Sea crude for August delivery fell US$6.95 to US$107.26 in London.

“The dive in crude oil prices prompted investors to turn optimistic about the bottom line of the local transport sector,” Hua Nan Securities analyst Henry Miao said.

“They were buying into transport heavyweights such as China Airlines, EVA Airways and Evergreen Marine on hopes that lower fuel prices will cut their operating costs,” Miao said.

EVA Air closed up 4.5 percent to NT$29, CAL climbed 3.53 percent to NT$19.05 and Evergreen Marine added 1.57 percent to end at NT$22.60.

The transport sector was up 2.02 percent, while the benchmark weighted index was down 0.40 percent at 8,532.83 points.

Miao noted that the local transport sector had been haunted by high fuel costs since the beginning of this year, referring to a loss per share of NT$0.08 posted by CAL and the thin earnings per share of NT$0.09 registered by EVA Air.

According to Hua Nan Securities, fuel costs account for about 40 percent of airlines' operating costs and some 20 percent of shipping companies' operating costs.

“If, and I stress if, crude oil prices remain at the current low levels, these airlines and shippers may have a better second half this year,” Miao said. “But, few can say for sure whether the latest drop in oil prices will last or for how long.”

Miao recommend that investors not chase prices at the moment as there is still some uncertainty.

In addition, Miao said, shippers were faced with a stagnation in fees due to a surplus in container space as the global economy is showing signs of a slowdown on weaker than expected U.S. growth and the debt problems in the eurozone.

“The current gains largely came from speculative buying and it is very likely that these stocks will suffer a technical correction soon,” he said.

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