Monday, May 11, 2009
Chinese go full steam ahead for bulk ship bargains
Monday, 11 May 2009
CHINA Shipping, the nation's second-biggest sea cargo company, plans to order dry bulk ships this year as prices fall on overcapacity concerns and the global recession. "We'll never give up on new investments," vice-chairma Zhang Guofa said in an April 30 interview in Shanghai. He declined to say how many vessels the company would add.
China Shipping intends to order vessels as prices have fallen following an 81 per cent drop in bulk shipping rates in the last 12 months caused by China's waning demand for imports of iron ore and other commodities.
The company has avoided the worst of the collapse in rates because of its dominance on domestic routes.
"The plan shows that the company believes dry-bulk rates have already bottomed out," said Jack Xu, a Sinopac Securities Asia analyst. Its China Shipping Development Co unit "is still profitable because of the limited competition in the domestic market".
An order for vessels by state-owned China Shipping would also be in line with government efforts to help local shipbuilders. The nation's shipyards, which build more than 70 per cent of dry-bulk vessels worldwide, didn't win a single order in the first quarter, according to Shanghai Waigaoqiao Shipbuilding.
"As a big enterprise, we always echo what the Government calls for," said Mr Zhang. "Still, the Government isn't forcing companies to invest or buy ships."
In a bid to revive rates that have dropped to unprofitable levels, bulk shipping lines have laid off vessels. At the same time, yards have backlogs for ships with a combined capacity equal to 68 per cent of the existing global fleet as they work through orders placed during a boom that ended last year.
"In the short term we are facing a painful market correction," Mr Zhang said. "Still, there will be a new balance."
The Baltic Dry Index, a measure of commodity shipping costs, closed at 1806 on May 1 compared with a record 11,793 in May last year.
The plunge in rates and capacity glut has caused vessel prices to fall. The cost of a 10-year capesize vessel had dropped 20 per cent, Mr Zhang said. Prices for new vessels would probably hit a low in the third quarter, he added.
China Shipping Development operated 110 bulk ships and 57 oil tankers as of December 31. The plunging rates caused China Shipping Development to report an 81 per cent drop in first-quarter profit.
China Cosco Holdings, the world's largest operator of dry-bulk vessels, posted a loss. China Shipping Container Lines, China Shipping's cargo-box unit, also had an unprofitable quarter, as US and European consumers pared spending on Asian-made goods.
"Demand from Europe and the US continues to shrink," Mr Zhang said. "The container market will be better next year than this year."
China Shipping Group had slowed some domestic port investments because of the trade collapse, Mr Zhang said. Still, the group was working on overseas investments, including terminals, he added.
The company has also asked the Government to speed up plans to phase out single-hull oil tankers, which are being banned worldwide in favour of more robust double-hull vessels. A ban would help ease overcapacity in the global fleet and stimulate demand for replacement ships, Mr Zhang said.
Source: Bloomberg
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