China Shipping rates rise 40pc amid bad weather, coal shortage

PUBLISHED : Thursday, 14 February, 2008, 12:00am
UPDATED : Thursday, 14 February, 2008, 12:00am

China Shipping Development, the largest coastal coal shipping company on the mainland, said rates for domestic freight contracts had jumped 40 per cent from last year due to coal shortages in the world's fastest-growing economy.

The increase surprised analysts who had predicted a 30 per cent rise.

However, power plants and iron mills in the country are desperate for coal after snowstorms swept through southeastern China before the Lunar New Year.

The weather paralysed railway and road transport, hindering the delivery of coal from northern China.

'The demand for coal in China has been severely high in these two weeks, which triggered shipping companies to reshuffle hundreds of vessels to domestic routes from international routes,' said Roslyn Ji Yongdi, a transport analyst at Core Pacific-Yamaichi.

More ships are now dedicated to domestic use as China has banned coal exports while the nation suffers from a shortage of the fuel.

China Shipping has renewed contracts for 89.4 million tonnes, up 6.9 per cent from a year earlier, increasing freight rates by 40 per cent, according to a company announcement after the market closed.

The company predicted a 40 per cent increase in income from domestic coastal bulk freight transport this year from last year. This segment represented 44 per cent of its income last year.

Shares in China Shipping rose 6.1 per cent to HK$21.05 yesterday. Shipping stocks have been mounting an across-the-board surge.

Among other shippers, Pacific Basin Shipping rallied 3.62 per cent to HK$12.02, China Cosco Holdings gained 5.03 per cent to HK$20.90 and China Shipping Container Lines rose 1.68 per cent to HK$3.03.

Analysts said the effect of the domestic freight rate increase had yet to be factored into the share prices of bulk shipping companies.

'The recent rise in shipping stock is due to a rebound in the Baltic Dry Index. The rise in freight rates will continue to impact the stock prices in a positive way,' said a transport analyst at a European-based securities company.

The Baltic Dry Index, an indicator of dry bulk freight rates, rose 3 per cent to 6,712 points yesterday.

China's robust demand for raw material drove up the bulk index to more than 11,000 points last year. However, talks between China and iron ore exporters have been at a stalemate and Brazil has ceased exporting iron ore to China for a month, sending the index to as low as 5,615 points on January 29.