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Monday, May 02, 2005

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Chinese growth fuels earnings of Indian shipping cos

Amit Mitra

Mumbai , May 1

WHILE the growing economic might of the Red Dragon may be spreading ripples of insecurity across certain corporate sectors in India, there is one sector that is actually making money out of this. And that is the Indian shipping sector.

Indeed, today the fortunes of the shipping companies are closely linked to the growth of the Chinese economy.

It was this growth that helped Indian shipping companies register significant increases in their revenues last fiscal, while even some big corporate names like HLL and Grasim experienced a dip in profits.

The reason: China has been importing huge quantities of raw materials such as iron ore, coal, bauxite, and tin to satisfy the appetite of its industries, which placed significant demand for shipping.

Last fiscal saw the Baltic Dirty Tanker Index (BDTI) rise by 26 per cent, while the Baltic Handy Max Index (BHMI) rose by 32 per cent and the earnings in the container segment by 52 per cent.

"This marks a phenomenal rise in the freight market and much of it can be attributed to the Chinese factor," a shipping analyst said.

Consider the results of the three private shipping companies in India. Great Eastern Shipping registered a 72 per cent jump in net profit, which touched Rs 809 crore, while Essar Shipping reported a 195 per cent in increase in net at Rs 460.58 crore. Varun Shipping's net grew to Rs 81.6 crore from Rs 35.8 crore in the previous fiscal.

"The major fear of slowing down of world economy was a reduction in the pace of the Chinese economic growth, but the numbers during first three months of 2005 indicate the reverse. The Chinese economy grew at a rate of 9.5 per cent, more than expected. And this is good news for the shipping industry," the analyst said.

Tanker fleet owners also benefited from the rise in China's oil demand. Chinese oil imports have, over the last two years, represented a major part of the world increase in oil production - the country has been increasing its oil consumption by a million barrels per day during the last three years.

This is clearly indicated by the rise in tanker freight, which greatly firmed up the bottomlines of the ship owners.

The average tanker earnings in the VLCC (Very Large Crude Carrier) segment rose from $35,000 per day in 2002-03 to $55,000 in 2003-04 and $82,000 last fiscal.

Similarly in the Suezmax category, the earnings rose from $30,000 per day in 2002-03 to $40,000 in 2003-04 and $60,000 last fiscal.

Reports indicate that the Chinese Government has announced plans to build a fleet of crude oil carriers, with the aim of eventually being able to transport 50 million tonnes per day (or one million barrels per day) of imported crude.

But, as of now, only 10 per cent of the country's total imports are being carried on Chinese shipping company vessels.

And this means that Indian ship owners, for the time being, can continue to look to China for business.

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