Core Viewpoint - Recently, the tanker freight rates have experienced a significant increase, positively impacting the earnings of global tanker owners, including China Merchants Energy Shipping Company (中远海能) [1] Company Summary - China Merchants Energy's stock opened over 3% higher, with a current price of HKD 9.34 and a trading volume of HKD 4.0722 million [1] - During the 2025 semi-annual earnings presentation on September 22, the company reported that most of its VLCC fleet is currently in spot operations [1] Industry Summary - The VLCC TCE (Time Charter Equivalent) reached USD 96,000 per day on September 16, 2025, maintaining a high level in the following days [1] - This freight rate level marks the best September performance for VLCC rates since 1990, with the previous peak in September 2004 also at USD 96,000 per day [1]

Group 1 - Zhongyuan Shipping (01138) opened over 3% higher, currently up 3.09% at HKD 9.34, with a trading volume of HKD 4.0722 million [1] - On September 22, Zhongyuan Shipping indicated a significant increase in tanker freight rates, positively impacting the fleet earnings of global tanker owners [1] - The company's VLCC fleet is mostly in spot operation, benefiting from the current market conditions [1] Group 2 - JPMorgan considers Zhongyuan Shipping as China's largest tanker operator and a global leader in crude oil, refined oil, and LNG transportation [1] - The company operates a diversified fleet under China COSCO Group, providing downside protection in a volatile freight market due to its scale, newer vessel age structure, and increasing LNG business [1] - Huayuan Securities reported that VLCC TD3C TCE reached USD 96,000 per day on September 16, 2025, maintaining high levels thereafter, marking the best September VLCC freight rates since 1990 [1] Group 3 - The upcoming week is the last full working week before China's National Day holiday, with a concentration of Middle East cargoes expected for October shipments [1] - The available VLCC capacity in the next 30 days is projected to reach the lowest level in the past year, suggesting potential further increases in VLCC freight rates, possibly surpassing the September high since 1990 [1]

Group 1 - The stock of COSCO Shipping Energy Transportation Co., Ltd. (中远海能) opened over 3% higher, currently up 3.09% at HKD 9.34, with a trading volume of HKD 4.0722 million [1] - On September 22, during the 2025 semi-annual performance briefing, COSCO Shipping Energy announced a significant increase in tanker freight rates, positively impacting the fleet earnings of global tanker owners [1] - Morgan Stanley highlighted that COSCO Shipping Energy is the largest tanker operator in China and a leading global transporter of crude oil, refined oil, and liquefied natural gas (LNG), benefiting from a diversified fleet and a relatively new fleet age structure [1] Group 2 - The VLCC TD3C TCE reached USD 96,000 per day on September 16, 2025, maintaining a high level in the following days, marking the best September VLCC freight rate since 1990 [1] - The upcoming week is the last full working week before China's National Day holiday, with a concentration of Middle Eastern cargoes expected for October, potentially leading to further increases in VLCC freight rates [1] - The available VLCC capacity in the next 30 days is projected to reach the lowest level in the past year, suggesting that VLCC freight rates may rise further, potentially surpassing the September freight rate peak since 1990 [1]

Investment Rating - The industry investment rating is "Positive" (maintained) [7] Core Insights - VLCC freight rates have reached new highs, with the TD3C rate hitting $74,338 per day, a year-on-year increase of 113%, indicating a strong Q4 peak is expected [1] - OPEC+ has announced a production increase of 137,000 barrels per day starting in October, contributing to a tighter supply-demand balance in the oil tanker market [2] - The supply side is constrained due to ongoing sanctions on Russian and Iranian fleets, with 17% of the crude oil tanker fleet under sanctions, which is expected to further tighten supply [3] - The global VLCC fleet has seen only 3 new deliveries this year, with 1 vessel scrapped, leading to a significant supply shortage [4] - The demand side is benefiting from OPEC+ production increases, while limited new deliveries and sanctions on non-compliant fleets are expected to drive freight rates to new highs in Q4 [5] Summary by Sections VLCC Freight Rates - VLCC freight rates have reached $74,338 per day, a 113% increase year-on-year, with expectations for Q4 to set a three-year high [1] OPEC+ Production Increases - OPEC+ has implemented multiple production increases throughout the year, totaling 2.193 million barrels per day, which is expected to support the oil tanker market [2] Sanctions Impact - The number of sanctioned vessels has risen to 1,636, accounting for 4% of global capacity, with 830 oil tankers under sanctions, representing 17% of the crude oil tanker fleet [3] VLCC Supply Constraints - The global VLCC fleet consists of 906 vessels, with only 3 delivered this year and 1 scrapped, indicating a tight supply situation [4] Investment Recommendations - The report recommends continued investment in companies such as China Merchants Energy Shipping, COSCO Shipping Energy Transportation, and China Merchants Jinling Shipyard, anticipating a significant increase in freight rates [5]

Core Viewpoint - The shipping rates have been rising continuously since August, indicating an early exit from the off-season, with a significant divergence from the same period in 2023 and 2024, suggesting a preemptive turning point [1][2] Group 1: Recent VLCC Freight Rate Increase - The increase in VLCC freight rates is attributed to macroeconomic factors, including expectations of a potential interest rate cut by the Federal Reserve, which has improved demand expectations for commodities and transportation prices [1][2] - The price differential between WTI crude oil and Middle Eastern crude has widened, opening up arbitrage opportunities that have led to increased long-distance transportation and tighter shipping capacity in the Middle East [1][2] - The Suezmax tanker rates have also been strong, reaching up to $60,000 per day, with some demand spilling over into the VLCC market [1] Group 2: Supply and Demand Dynamics - Recent supply reductions from Iran, Russia, and Venezuela are expected to increase future compliant crude oil demand, with Iranian exports dropping from 1.7-1.9 million barrels per day to around 1.3-1.4 million barrels per day, and Russian exports decreasing from 3.5 million barrels per day to approximately 3.1-3.2 million barrels per day [2] - Middle Eastern production increases are anticipated to gradually ramp up during the peak demand season from September to December, further supporting strong freight rates in Q4 [2] Group 3: China's Stable Demand and Global Inventory Trends - China's crude oil imports from January to July 2025 increased by 4.6% year-on-year, with a 5.3% increase in imports excluding Iranian, Venezuelan, and Russian crude, primarily sourced from West Africa, Brazil, and Canada [3] - The overall demand in China remains stable, entering a phase of proactive inventory replenishment, with current storage capacity still having room compared to historical highs [3] Group 4: VLCC Market Outlook - The aging fleet is leading to a decline in effective shipping capacity, with expected VLCC effective capacity growth rates of -4.1%, -0.3%, and +1.8% from 2025 to 2027 [4] - Demand growth from oil-producing countries is expected to continue driving trade volumes, with projected demand growth rates of 2.3%, 1.4%, and 1% for the same period [4] Group 5: Stock Market Performance and Potential Upside - The stock of China Merchants Energy Shipping is currently trading at 0.84 times its net asset value, compared to 1.16 times for FRO and 1.06 times for DHT, indicating significant potential for price correction [5] - A $10,000 per day increase in freight rates could lead to an increase of approximately 1.53 billion in pre-tax profits for China Merchants Energy Shipping's VLCC fleet [5]