China Shipping Warns Bleak Outlook For Baltic Dry Index

China Shipping boss warns markets will continue to be bleak

• Keith Wallis, Hong Kong - Wednesday 18 March 2009
  CHINA’s tanker and dry bulk markets will continue to come under pressure as a result of falling cargo volumes and over capacity, the head of one of the country’s largest shipping companies has warned.
  
  China Shipping Development chairman Li Shaode said global oil demand was forecast to average around 84.7m barrels of oil per day this year, down by 1m barrels per day compared with 2008.
  
  At the same time 70 very large crude carriers were due to be delivered this year, boosting carrying capacity by around 8%.
  
  He said that as a result of this imbalance “it is expected that the international tanker shipping market will face downward pressure in 2009”.
  
  In the dry bulk sector, Mr Li said CSD had already seen a 39.2% year-on-year fall in freight rates on new contracts of affreightment signed this year for domestic coastal coal shipments. This drop in demand for vessels on China’s domestic coal trade would come at a time when capacity would increase.
  
  Mr Li added that the overall impact on the company of this decline is that although cargo volumes are likely to rise by a forecast 10.4% to 253.4bn tonne nautical miles, turnover is set to crash 44% to Yuan9.8bn ($1.4bn) this year.
  
  This would coincide with a 10.8% rise in group shipping capacity to 8.4m dwt as the company took delivery of 19 vessels comprising 14 tankers totalling 2.3m dwt and five bulkers of 460,000 dwt.
  
  Offsetting these deliveries will be the planned scrapping this year of 11 vessels totalling 309,000 dwt.
  
  Mr Li said currently China Shipping Development has 69 ships of 9.5m dwt under construction for delivery between now and the end of 2012 at a capital cost of Yuan21.1bn.
  
  In an effort to tackle the crisis in the shipping sector, he said the company would continue to enhance strategic co-operation with major customers and maintain long-term strategic relationships.
  
  He cited the signing of joint ventures in the first half of last year with Shanghai Puyuan Shipping and Baosteel Resources to expand the firm’s iron ore transport business as examples of this co-operation.
  
  The company also planned to enhance its tanker business by building on its relationships with Chinese oil majors including PetroChina, Sinopec and China National Offshore Oil Corp.
  
  Mr Li was speaking after the company announced an 18% rise in net profit to almost Yuan5.4bn last year, up from nearly Yuan4.6bn in 2007. Revenue soared 38.9% to Yuan17.2bn, against Yuan12.4bn a year earlier.
  
  He said the biggest rise in revenue was from the coal business which rose 29.1% to almost Yuan6.8bn. By comparison, revenue from tanker operations climbed 21.7% to close to Yuan6bn, while revenue from other bulk operations increased 15.9% to about Yuan2.5bn.
  
  He said the record figures followed a renewed focus on China Shipping’s core businesses of domestic coastal coal shipping and oil transportation that were buoyed by a rise in coastal coal freight and international tanker rates last year.
  
  Mr Li added that the volume of dry bulk shipments rose 5.2% to 125.3bn tonne miles, while oil transport volumes rose 21.7% to 104bn tonne nautical miles.
  
  The company also benefitted from its 50% stakes in three shipping subsidiaries — Shanghai Times Shipping, Zhuhai New Century Marine and Shanghai Friendship Marine — after it saw a massive 221% rise profit to Yuan532m from the three firms.
  
  The three companies carried 35.6m tones, a 2.6% increase over 2007. Mr Li said the offshoots own 28 bulkers with a total capacity of 1.2m dwt while a further 13 newbuildings totaling 850,000 dwt are under construction.
  
  On China Shipping’s own newbuilding programme, Mr Li said the company ordered 12 vessels totalling 912,000 dwt last year, while two 44,000 dwt oil tankers were delivered in 2008.
  
  He added that 18 ships, comprising five small tankers, eight bulkers and five box ships, were sold to generate Yuan389.5m in profit on sales revenue of Yuan624.4m.

The BDI index is showing some corrections after its impressive rebound.