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Tuesday, June 09, 2009

Mitsui OSK: China demand may raise profit

Tuesday, 09 June 2009

Mitsui O.S.K. Lines Ltd, Japan's second-biggest shipping line in terms of sales, said a recent strong upturn in the dry bulk market could lift its group profit, offsetting a bigger-than-expected loss in cargo business.
The robust demand in China bolstered the charter rate of bulk carriers by five-hold in two months as the country boosted iron ore imports by more than 20 percent in the first four months from a year earlier, coal by 50 percent and soy-beans by nearly 40 percent, Mitsui O.S.K. said.
"If the average charter rate stays above $50,000 through the year, that would have a bigger impact on our earnings (than a loss in the container business)," Kenichi Yonetani, Mitsui O.S.K. senior managing executive officer, told Reuters in an interview on Thursday.
The average daily charter rate of capesize bulkers soared from $18,000 on April 1 to $93,000 on June 3.
Mitsui O.S.K. forecasts a group pretax recurring profit of 80 billion yen ($830 million) for the year to March 2010, based on an assumed capesize charter rate of $25,500.
"The robust pace didn't slow down in May. Demand in China is much stronger than we anticipated thanks to the economic stimulus package," Yonetani said.
But Mitsui is struggling to raise container rates as the industry is grappling with overcapacity and slumping demand. There is a risk of the company posting a bigger loss than its estimate of 20 billion yen in the container division this year, Yonetani said.
Mitsui O.S.K. is the only shipper among Japan's three major shipping companies to have forecast a first-half profit, as it managed to avoid the worst of a collapse in commodity shipping rates by locking in fees through long-term contracts.
Japanese rivals include Nippon Yusen KK  and Kawasaki Kisen Kaisha Ltd..
The container business is the biggest drag on its earnings due to unprofitable rates and sagging volumes.
Yonetani said he expects overcapacity in the container market to continue for several years.
"Only diversified shippers which provide a wide range of services including bulkers and containers will be able to survive," he said.
The aggregate loss at the world's top ten container shippers, including Danish shipping and oil group AP Moller-Maersk , climbed to 254 billion yen ($2.64 billion) in the first quarter, according to maritime industry journal Kaiji press.
Yonetani said spinning off its container shipping division was one option, but the benefit would be small due to the industry's huge overcapacity.
Source: Reuters