China Shipping Development saw its net profit dive 80.7 per cent in the first six months of this year as freight rates for coal and oil slumped, but the company said it expected profit to improve this half. The company, the mainland's biggest coastal energy shipper, said it had invested in clean energy development in a nation thirsty for energy. China Shipping has created a joint-venture shipping company with PetroChina to transport liquefied natural gas (LNG) from Australia's Gorgon field to Guangzhou. The venture, in which China Shipping owns 90 per cent, will invest US$400 million to US$600 million to buy two to three LNG vessels, managing director Mao Shijia said yesterday. The terms of the shipping contract will be finalised as early as next quarter. In addition to the Australian LNG contract, the company was negotiating with Sinopec, the mainland's second-largest oil company, an LNG shipping contract with Papua New Guinea, Mr Mao said. The LNG project would not generate profit in the first three years because of the high sunk cost, or irrecoverable expenses, said BOC International transport analyst Jimmy Lau. An LNG vessel costs twice the price of a crude oil vessel carrying the same energy content. LNG shipping is a capital-intensive investment, but returns are relatively stable with contract terms stretching 20 to 25 years and investment returns above 10 per cent, Mr Mao said. Hindered by the global economic downturn, the company's net profit fell to 613.64 million yuan (HK$696. 17 million) from 3.18 billion yuan a year earlier. Shipping volume dropped 10.6 per cent to 101.6 billion tonnes/nautical mile, while sales were down 54.8 per cent to 4.12 billion yuan. The operating margin was under pressure because freight rates and the proportion of international oil shipping fell. The contracted price for coal shipments signed this year was down 39 per cent year on year. Chairman Li Shaode said the spot rates for coal and oil in the third quarter would be better than in the first half. He believed freight rates for oil would climb as the recession eased. As the gap between domestic and international coal prices has narrowed, it would stimulate demand for domestic coal from power plants in southern China, benefiting the company, said Mr Lau. China Shipping will take delivery of 14 oil tankers in this half, of which five are very large crude carriers, boosting its tanker fleet to 2.2 million deadweight tonnes. Some smaller shipping companies were requesting a merger with China Shipping, said Mr Li, but he did not elaborate. The firm is also looking for merger and acquisition opportunities to secure its shipment volume. The company had committed to taking delivery of 64 vessels worth 19 billion yuan as of June 30. About 60 per cent of that amount will come from bank borrowing, of which 85 per cent has been secured with preferential interest rates - the London interbank offered rate plus 34 to 35 basis points. Mr Li said the company had no plans at the moment to tap the capital market for funds, as it has an ample supply of credit.