"Large Banks" Huayan: Tanker freight rates soar due to the closure of the Strait of Hormuz, maintaining "Reduce" rating for Air China and China Southern Airlines

Huayan published a report indicating that Iran's closure of the Strait of Hormuz has the greatest impact on maritime oil and gas trade. According to data from Clarkson Research, approximately 11% of global maritime trade passes through the Strait of Hormuz, including about 38% of oil trade (or 20% of oil supply), 29% of liquefied petroleum gas, 19% of liquefied natural gas, 13% of chemicals, 9% of automobiles, with only 3% of containers and 2% of dry bulk cargo. According to data from the International Air Transport Association (IATA), Middle Eastern airlines account for 13% of global cargo volume and 9% of passenger volume in 2025, but the impact may be greater when considering foreign airlines.

Huayan also believes that as the tanker fleet's capacity tightens and long-distance transportation increases, competition for long-distance supplies from the Americas and West Africa (which is 1.3 to 2.4 times the distance of the Middle East Gulf to China) will provide further upward pressure on freight rates for this route. It is also expected that Russia's oil flow will increase, while the storage capacity of floating oil storage facilities will decrease.

In terms of container shipping, the report states that due to Yemeni militants' vow to resume attacks on commercial vessels in the Red Sea, related uncertainties may push up recent freight rates and support negotiations for trans-Pacific contracts from April to May. With disruptions at Middle Eastern ports (which account for 5% of global container throughput), port congestion may worsen. The shipping industry may thus gain unexpected profits, driving new ship orders, benefiting Yangtze River Shipbuilding, the largest private shipbuilding company listed in Singapore. The report maintains a "reduce" rating on Evergreen Marine, COSCO Shipping Holdings (01919.HK), and Orient Overseas (00316.HK).

The report also notes that the impact of the events on ports is mixed. Mundra Port in India faces risks in its Haifa port operations due to the current conflict, while International Container Terminal Services, Inc. (ICTSI) at its port in Iraq will be directly affected by any disruptions in the Strait of Hormuz. However, the diversion of transshipment cargo and increasingly severe congestion will somewhat offset these impacts.

Regarding airlines, Huayan believes that rising oil prices will erode profits, and Asian airlines are particularly sensitive to rising oil prices, especially in the absence of hedging. It is expected that a 10% increase in oil prices will reduce profits for mainland Chinese airlines by approximately 68%, and Cathay Pacific Airways (00293.HK) by 29%, maintaining a "reduce" rating on Air China (00753.HK) and China Southern Airlines (01055.HK). Indian airlines are the most affected, as the Middle East accounts for over 40% of India's international air traffic. Due to maritime disruptions, air transport capacity is tightening, and the shift to air transport may drive up transportation prices.

For Huayan's ratings and target prices on the aforementioned sector stocks, please refer to the other table