Neptune Orient Lines likely to be affected by the 15% oil price increase

The liners may not be able to fully pass on the higher fuel costs in the short term, especially given the seasonally weak period now.

According to DBS, while volume growth will continue in FY11, the current key concern is potential fuel price spike amid political uncertainties on the Middle East.

Oil prices have now risen 15% since the start of the Libyan crisis and this will affect sentiment for the liners.

While demand is of course the key driver for profitability, and our views on the US recovery and Intra-Asia trades remain relatively firm, the oil price volatility does add a higher degree of uncertainty that before. The sector outlook is uncertain in the near term with high number of new containership deliveries expected in 1H-2011.