HONG KONG: Pacific Basin Shipping Limited, one of the world's largest dry bulk operators, reported a better-than-expected first half-year result, driven mainly by the demand from the mainland, while industry overcapacity and the global trade slump keep weighing on shipping carriers.

The Hong Kong-based shipping carrier said yesterday profit for the first half of the year fell 78 percent to $74.8 million, mainly due to a reduction in the company's handysize earnings from $32,580 to $13,610 per day.

The result is better than anticipated, as the market expected the carrier's whole year net income to be $98 million, according to a shipping analyst at UOB Kay Hian.

The encouraging outcome was largely a result of the carrier's strategy of dodging risks by contract cover. The company's average handysize earning stood at $13,610 in the first half, 57 percent higher than the average of Baltic Handysize Spot Index (BHSI), an indicator of dry bulk shipping rates. According to the company, 89 percent of their contracted 23,560 handysize revenue days of 2009 are covered at $14,280 per day while the BHSI was at $12,107 per day on August 3. The carrier also secured 93 percent of combined handysize and handymax revenue days this year and 53 percent next year.

Dry bulk markets were choppy but surprisingly buoyant in the first half as a result of a surge in iron ore demand on the mainland, while the Baltic Dry Index (BDI) recovered dramatically through the period from just above its 22-year low of last December, the company said in its statement.

"The freight market is expected to remain volatile, due partly to the fluctuation in demand for raw materials from China's mainland, which was the biggest driver of our business," said company chief executive officer Richard Hext.

In particular, the mainland's demand for iron ore is likely to be flat for some time, as there are already significant stockpiles at ports," shipping analyst Stella Kai at UOB Kay Hian said yesterday. "This may impose some negative influences, as iron ore is the largest component of dry bulk," she added.

According to Clarksons' estimate, the mainland's total iron ore import is likely to stand at 555 million tons for the whole year, given that the first seven months have seen 355 million tons of the iron ore imported - only 9 percent larger than the predicted average of 323 million tons per month for the year.

The carrier said the company will accordingly remain cautious for the reminder of the year and 2010, and has deferred deployment of three roll-on-roll-off (RoRo) vessels until 2011.

The shipping industry has already bottomed out as reflected by the BDI which already exceeded its pre-2003 highs; but it will not see stability until the end of 2010, by the earliest, as the four-year cycle plays out, the UOB Kay Hian analyst added.

(HK Edition 08/12/2009 page4)