Pacific Basin soars on high rates

Pacific Basin Shipping's first-half profit more than quadrupled as the dry bulk shipper benefited from record high freight rates.

The company expects rates will be buoyant for the next two years driven by the demand for commodities from the mainland and India.

Net profit in the first six months of the year increased to US$162.9 million from US$36.4 million a year earlier. Excluding a US$50.2 million one-time gain from the disposal of five vessels, operating profit increased 1.5 times to US$119.3 million.

Sales surged 90 per cent to US$455.4 million. The Baltic Dry Bulk Index is trading at a record high because of congestion at Australian ports and buoyant demand for coal from the mainland.

'The outlook for 2007 and 2008 is very encouraging due to the fixed supply of capacity in shipyards against strong demand [for freight],' said Richard Hext, chief executive of Pacific Basin.

Mr Hext said that due to high cargo demand, the traditional summer low - a dip in freight rates from June to August - did not happen this year or last. The spot rates for Handysize vessels stood at US$32,441 per day earlier this month.

Dry bulk freight rates will grow 5 per cent next year, according to a report from Credit Suisse.

Mr Hext said that shipyards are starting to take more orders for dry bulk vessels, which will change supply and demand in the market. The order book has risen to a historical high, comprising 39 per cent of the existing fleets.

However, Mr Hext said the Handysize market will be more resilient to oversupply since orders in that sector only account for 20 per cent of the existing fleet. In addition, more than 32 per cent of existing Handysize vessels are over 25 years old and are due to be scrapped.