Capacity glut, oil prices hit shipper

PUBLISHED : Saturday, 17 March, 2012, 12:00am
UPDATED : Saturday, 17 March, 2012, 12:00am


China Shipping Development, one of the mainland's largest oil and commodities shipping groups, said a capacity glut and high oil prices will continue to cast a pall over the shipping industry in 2012.

The company's 2011 net profit dropped 39 per cent year on year to 1.05 billion yuan (HK$1.28 billion) due to plummeting freight rates for crude oil. Sales rose 8 per cent year on year to 12.1 billion yuan.

Industry sources expect the demand for crude oil shipment to rise less than 5 per cent this year, outstripped by an 8.4 per cent capacity increase. The capacity for bulk shipping is expected to rise 10 per cent while demand is only tipped to rise 3.5 per cent.

Unlike its international peers, China Shipping has signed long-term contracts with state-owned refineries and steel mills to offset the volatility in the market. It also shrugged off the impact of international sanctions against Iran, a major oil producer, and general manager Yan Zhichong said the group would continue to ship Iranian crude oil to China.

It ships about 3 million tonnes of crude oil from Iran annually, accounting for 30 per cent of Iran's total oil shipments to China.

Despite the capacity glut, the company said it would take delivery of 44 new vessels, equivalent to an 18 per cent increase in its total capacity.

Li ruled out delaying the delivery of the vessels, banking on occasional rebounds in different markets this year, saying that an industry measure for shipping rates for very large crude carriers, had rebounded to 65 points recently, from 52 points last year.

Oil prices, which now account for 47 per cent of the company's operating costs, were another concern, and China Shipping said fuel costs would rise to 50 per cent of its operating costs this year. It planned to cut fuel use by reducing ship speeds.

The company's shares closed up 0.9 per cent at HK$5.48 yesterday.