Bloomberg News

China Shipping's Profit Falls on Higher Fuel Costs

August 22, 2006

China Shipping Development Co., the country's biggest oil carrier, said first-half profit fell 19 percent as it failed to pass on higher costs to customers.

Net income fell to 1.29 billion yuan ($162 million), or 0.4 yuan a share, from 1.6 billion yuan, or 0.48 yuan a share, a year earlier, the Shanghai-based company said in a statement to the Hong Kong stock exchange today. That was in line with a 1.3 billion yuan median estimate in a Bloomberg News survey of four analysts. Sales rose 9.3 percent to 4.59 billion.

Higher fuel prices are eroding earnings at China Shipping, Japan's Mitsui O.S.K. Lines Ltd. and other carriers. The price of marine fuel rose an average 42 percent in the first half from a year earlier.

``Margins are falling despite an increase in volumes,'' Gideon Lo, an analyst at DBS Vickers Hong Kong Ltd., said before the earnings were announced. ``The second half may not be that much better because fuel prices are still high,'' said Lo, who has a ``sell'' rating on China Shipping shares.

China Shipping's shares closed unchanged at HK$6.36 in Hong Kong before the announcement. The stock has gained 12 percent this year, compared with a 15 percent advance in the Hang Seng Index.

Fuel Prices

The price of Centistoke 380 bunker fuel, used by ships, traded at an average $332 per metric ton in Singapore in the first half, compared with $223 a year earlier, according to Bloomberg data.

Rising demand for raw materials from China and other Asian nations boosted cargo volumes. China Shipping carried 70.2 million metric tons of oil, coal and other goods in the first half, an increase of 6.9 percent, the company's Web site showed.

Sales from moving cargo rose 8.6 percent to 3.92 billion yuan in the first five months of the year, China Shipping said, without providing first-half numbers.

China Shipping is expanding its fleet of oil tankers to take advantage of increased demand. China, the world's second- largest energy user, may consume 5 percent more crude oil this year, the government said on Aug. 4.

China Shipping is taking delivery of four oil tankers this year, including one so-called very large crude carrier, which has a capacity of 2 million barrels of oil each. It operated 79 oil tankers as of March 31.

The company also placed an order in March for eight tankers for a total of $557.3 million to be delivered starting 2007. Last month, it signed a 10-year contract with China Petroleum & Chemical Corp. (386), Asia's biggest oil refiner, to ship oil into China.

Sinopec, as the refiner is called, will ship between 3.5 million and 4.5 million tons in the first year, and will increase that to as much as 12 million tons in 2010, China Shipping said.

``This will reduce China Shipping's earnings volatility,'' Michael Chan, an analyst at Macquarie Securities Ltd. in Hong Kong, said before earnings were announced. He has an ``outperform'' rating on China Shipping stock.

To contact the reporter on this story: Vicki Kwong in Hong Kong at vkwong@bloomberg.net

To contact the editor responsible for this story: Bret Okeson in Tokyo at bokeson@bloomberg.net


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