China Shipping to Order Dry-Bulk Ships as Prices Fall

(Bloomberg) -- China Shipping (Group) Co., the nation’s second-biggest sea-cargo company, plans to order dry- bulk ships this year as prices fall on overcapacity concerns and the global recession.

“We’ll never give up on new investments,” Vice Chairman Zhang Guofa said in an April 30 interview in Shanghai. He declined to say how many vessels the company would add.

China Shipping intends to order vessels as prices have fallen following an 81 percent drop in bulk-shipping rates in the last 12 months caused by China’s waning demand for imports of iron ore and other commodities. The company has avoided the worst of the collapse in rates because of its dominance on domestic routes.

“The plan shows that the company believes dry-bulk rates have already bottomed out,” said Jack Xu, a Sinopac Securities Asia Ltd. analyst. Its China Shipping Development Co. unit “is still profitable because of the limited competition in the domestic market.”

An order for vessels by state-owned China Shipping would also be in line with government efforts to help local shipbuilders. The nation’s shipyards, which build more than 70 percent of dry-bulk vessels worldwide, didn’t win a single order in the first quarter, according to Shanghai Waigaoqiao Shipbuilding Co.

“As a big enterprise, we always echo what the government calls for,” said Zhang. “Still, the government isn’t forcing companies to invest or buy ships.”

Laid-Up Ships

In a bid to revive rates that have dropped to unprofitable levels, bulk-shipping lines have laid up 15 percent of vessels worldwide, according to data compiled by Bloomberg. At the same time, yards have backlogs for ships with a combined capacity equal to 68 percent of the existing global fleet as they work through orders placed during a boom that ended last year.

“In the short term, we are facing a painful market correction,” Zhang said. “Still, there will be a new balance.”

The Baltic Dry Index, a measure of commodity-shipping costs, closed at 1,806 on May 1 compared with a record 11,793 in May last year.

The plunge in rates and capacity glut has caused vessel prices to fall. The cost of a 10-year capesize vessel, for instance, has dropped 20 percent, Zhang said. Prices for new vessels will likely hit a low in the third quarter, he added.

China Shipping Development operated 110 bulk ships and 57 oil tankers as of Dec. 31. Its shares rose 5.6 percent to HK$9.48 at 11:57 a.m. in Hong Kong trading, extending gains for the year to 23 percent.

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