KUALA LUMPUR: The country’s shipping sector continues to be in the doldrums even though shipping rates have recovered from a two-decade low of 663 points in December last year.
The Baltic Dry Index (BDI), which is a major gauge of shipping costs for commodities, rose to 1,989 points on Feb 12. The current level, however, is lower than last year’s average of 6,365 points when the index soared to a high of 11,930 in May.
Analysts said that BDI’s rebound was driven by higher dry bulk demand from China while in Malaysia, the shipping sector had to cope with reduced consumer demand.
“In general, the outlook for the shipping sector is not that great,” said an analyst from a local bank-backed research firm. “Unless global demand is restored, the outlook for the shipping sector as a whole is very bleak,” he said.
As an indication on how bleak conditions would be for shippers, Singapore-listed Neptune Oriental Lines (NOL) said last week that it expected a loss for the full-year 2009 as demand continued to drop.
When contacted, NOL’s corporate affairs vice-president David Goodwin told The Edge Financial Daily the shipping firm maintained its outlook on container shipping and related businesses, which were in the midst of “pronounced downturn which is expected to extend through 2009”.
In NOL’s financial statement last week, it said reduced consumer demand worldwide, coupled with excess supply of new vessel tonnage created a very difficult business environment.
NOL’s group chairman Cheng Wai Keung was quoted as saying 2008 was a year of dramatic change, where the group faced some of the most turbulent conditions in its history, which was reflected in its fourth-quarter operating results. “Conditions similar to those in the fourth quarter of 2008 are expected to continue through 2009,” it said.
The NOL Group posted a net profit for 2008 of US$83 million (RM298.8 million), an 84% drop from US$523 million posted in 2007. Its core earnings before interest, taxes (Ebit) for 2008 were 64% down to US$213 million, while revenue rose 14% year-on-year to US$9.29 billion. According to Bloomberg data, NOL’s market capitalisation stood at S$1.77 billion (RM4.23 billion).
A shipping analyst said national shipper MISC Bhd and Malaysian Bulk Carriers Bhd (Maybulk) would be feeling the headwinds from the slowdown in global economies. MISC fell 15 sen to RM8.55 last Friday.
MISC’s net profit for its second quarter ended Sept 30, 2008, declined 30% to RM450.2 million from RM639.3 million a year earlier, while revenue rose to RM4.5 billion from RM3.2 billion.
Maybulk’s net profit for the third quarter ended Sept 30, 2008, rose 24% to RM143.5 million from RM115.5 million a year earlier on the back of a 32% jump in revenue to RM216.5 million from RM163.7 million previously. Maybulk shares gained six sen to RM2.79.
Officials of both companies could not be reached for comments.
In a recent research report, Kenanga Research said improved fundamentals in China’s steel industry led to a recovery in the freight index.
“Iron ore imports, steel production and steel prices in China are recovering from the recent low in November last year following industry wide production cuts and drawing down of inventory… the next catalyst could be the iron ore price negotiation,” it said.
It also said a price slash between 20% and 80% in iron ore price could encourage more imports from China which would be positive for the dry bulk market.
“Near-term bulkers’ share price should track underlying BDI strength after investors discounted poor earnings for the next two quarters with the massive selldown and price-earnings ratio contraction in 2008,” it said, adding it was maintaining its hold recommendation on Maybulk with a target price of RM2.50.