China Cosco, CSCL Tumble After Wider First-Half Losses - Businessweek

China Cosco Holdings Co. (1919) and China Shipping Container Lines Co. (2866), the nation’s two largest listed ship operators by sales, fell in Hong Kong trading after reporting wider first-half losses.

China Cosco declined 3.5 percent to HK$3.04, the lowest price since Oct. 6, after yesterday saying its loss widened to 4.87 billion yuan ($767 million). Its dry-bulk and container- shipping units both posted larger losses than a year earlier. CSCL plunged 11 percent, the most since Oct. 18, to HK$1.57 after its first-half loss widened.

The two companies both said overcapacity in container- shipping was likely to continue after a glut of vessels sapped rates in the first half limiting their ability to pass on higher fuel costs. China Cosco, based in Tianjin, also forecast continued “excessive” supply in the commodities-shipping sector after overcapacity caused rates to average 31 percent lower than a year earlier, based on the Baltic Dry Index.

“Dry-bulk shipping remains in severe oversupply.” Citigroup Inc. analysts Vivian Tao and Alan Wang wrote in a note today. In the container sector, “capacity management needs to be a lot more aggressive in order to restore the demand and supply relation.”

They cut their target price for China Cosco to HK$2.59 from HK$3.15, revised their full-year earnings forecast to a loss, and reiterated a sell rating.

China Cosco’s dry-bulk shipping unit widened its loss to 3.42 billion yuan in the first half from 2.7 billion yuan a year earlier. The container-shipping fleet, China’s biggest, had a loss of 1.3 billion yuan, compared with 947 million yuan a year earlier.

Dry-Bulk Shipping

The company’s dry-bulk shipping volume fell 18 percent from a year earlier to 112 million tons. Revenue dropped 32 percent to 8.26 billion yuan. The company pared the size of its commodity-carrying fleet to 357 owned and leased ships at the end of June from 376 three months earlier.

“Excessive shipping capacity will remain the primary challenge” for the dry-bulk sector in the second half of the year, China Cosco said in a statement. The company had booked 63 percent of 2012 revenue-days as of June 30 at an average rate 29 percent lower than for 2011.

The Baltic Dry Index (BDIY), a benchmark for commodity-shipping rates, averaged 31 percent lower in the first six months of the year than a year earlier.

Container Volumes

China Cosco’s container volumes on Asia-Europe routes rose 22 percent from a year earlier and by 15 percent on trans- Pacific lanes. Average rates on both sectors were little changed from a year earlier, according to Bloomberg calculations. The company had 166 container ships at the end of June, with another 22 on order.

Increasing competition may damp rates in the second half of the year and an oversupply of capacity will “worsen,” China Cosco said. The company, which also has a logistics business and a stake in container-terminal operator Cosco Pacific Ltd. (1199), forecast a net loss for the nine months through September.

The company is trying to avoid a second straight year of losses so that the Shanghai stock exchange won’t include it in the so-called special treatment list of stocks, China Cosco Chairman Wei Jiafu said today. The special treatment stocks have a 5 percent limit for daily gains and declines after being so designated because of the consecutive annual losses.

“We’re thinking of ideas everyday to get out of this dilemma,” Wei said.

Fuel Costs

China Shipping had a first-half loss of 1.28 billion yuan, compared with a 630 million yuan loss a year earlier, because of higher fuel costs and lower average rates on Asia-Europe routes.

The price of 380 Centistoke Bunker Fuel, used by ships, averaged $695.58 per ton in Singapore trading in the first half, compared with $628.30 a year earlier, according to data compiled by Bloomberg.

Transpacific rates are expected to continue rising in the second half of the year, while Asia-Europe rates may “fluctuate,” Managing Director Zhao Hongzhou told reporters in Hong Kong. China Shipping aims to raise rates next month and in October, he said.

The company has no plans to delay taking deliveries of the ships on order, and will add three 47,000 ton vessels in the second half, Zhao said.

To contact Bloomberg News staff for this story: Alexandra Ho in Shanghai at aho113@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net