Pacific Basin income falls 78pc, forecast bleak

PUBLISHED : Wednesday, 12 August, 2009, 12:00am
UPDATED : Wednesday, 12 August, 2009, 12:00am

Pacific Basin Shipping has posted a 77.84 per cent plunge in net interim profit and warned that iron ore demand could fall in the second half, hurting shipping rates.

Net profit fell to US$74.8 million in the six months to June from US$337.6 million a year earlier. However, the result was still better than expected owing to a US$15 million unrealised gain from derivative investments and from higher contract prices in the first half.

China Cosco Holdings, the largest bulk shipping company in the world, recently filed a profit warning, saying it would report an interim loss later this month.

Pacific Basin declared an interim dividend of 8 HK cents per share, down from 76 HK cents a year earlier.

Chief executive Richard Hext said the outlook for bulk shipping was bleaker than in the first half.

'We are concerned about the unpredictability of mainland demand for iron ore. The second half will not be as good as in the first half,' said Mr Hext.

Pacific Basin sold five vessels in the first half, and two have been leased back to reduce capacity. Moreover, it delayed delivery of three roll-on, roll-off vessels by one year to 2011 owing to the weak market.

The mainland, the world's largest user of iron ore and biggest steel producer, imported 597 million tonnes of iron ore in the first half, up 29 per cent from last year, boosting average bulk charter rates, or the Baltic Dry Index, by 2.5 times this year.

But executive director Wang Chunlin said the mainland was not expected to import as much iron ore as it did in the first half, when miners boosted import volume.

He said the freight rate was included in iron ore prices, so Australian miners had an incentive to send more ore to China in the first half, pushing up freight rates and ultimately lifting their own iron ore price.

Despite the tough conditions, the company said it had covered 93 per cent of the loadable capacity of the combined handysize and handymax vessels under contract this year, helping to offset the impact of falling spot rates in the second half.

Handysize vessels are between 25,000 and 34,999 deadweight tonnes, while handymax are bigger but below 60,000 dwt.

About 89 per cent of contracts for handysize vessels were covered at US$14,280 per day, compared with a US$12,107 spot rate on August 3. About 53 per cent of the total loadable capacity in 2010 was also covered by contracts, the firm said.

Pacific Basin closed 0.17 per cent up at HK$5.91 yesterday.