China Cosco first six months loss up 76.7%
China Cosco, the listed arm of the mainland's biggest shipping company, reported a 76.7 percent increase in loss in the first half of the year compared with the same period last year.
China Cosco reported a first-half net loss of US$766.18 million wider than the year-earlier net loss of $434.22 million, reported Dow Jones Newswires.
The state-controlled company, whose businesses include container and dry-bulk shipping, said it also expects to post a loss for the first nine months as the weak global economy and slowing growth in China weigh on freight rates.
"Shipping companies will continue to struggle with the slowing global economy, weak demand and high fuel costs. The company will reduce losses as far as possible," Cosco, the world's second-largest shipping company by fleet size, said in a statement to the Shanghai Stock Exchange.
The global shipping industry, often seen as a barometer of the health of the world economy, has been hurt by Europe's debt crisis. Cosco's problems are also part of a broader industry shakeout that has been exacerbated by China's rise as a global shipping power.
China Shipping Container Lines, another leading shipping company in China, earlier reported a net loss of $201.38 million in the first half.
Credit Suisse said in a recent note that the dry-bulk business could be a long-term drag on Cosco's earnings. The Swiss bank expects Cosco's 2012 net loss to rise to $707.97 million from its previous forecast of $283.19 million.
Data from Clarkson Research Services, the research arm of Clarksons shipbrokers, show that global demand for dry-bulk transporters will likely rise four percent this year, a far cry from the expected 11 percent increase in fleet capacity.
Cosco's revenue from its dry-bulk shipping unit, the world's largest by fleet size, fell 32 percent to $1.31 billion in the first half because of an 18 percent drop in shipping volume, indicating weaker domestic demand.
As of June 30, it had a dry-bulk fleet of 357 ships, including 130 ships chartered from other companies.
The Baltic Dry Index, which tracks the cost of shipping raw materials and is widely considered a leading economic indicator, has fallen sharply in the past year. In February, it touched a low of 647 points, near its all-time low of 554 points in July 1986. The BDI's historic high of 11,793 points was hit in May 2008.
China's economic growth rate fell to 7.6 percent in the second quarter, the slowest rate since the global financial crisis. The slowdown, coupled with China's slower investment, has curbed imports of industrial commodities such as iron ore and coking coal, which are typically carried by dry-bulk ships.
Cosco's container unit, the world's fourth-largest operator of container ships by capacity, reported a 15 percent rise in first-half revenue to $3.25 billion thanks to a joint effort by global liners to raise freight rates on long hauls.
Freight rates for container ships travelling from China to Europe, one of the world's busiest shipping routes, surged 41 percent from the second half of last year, said Cosco, citing the official China Container Freight Index.
Should Cosco report a second consecutive annual loss, after last year's loss of $1.65 billion, it would risk being put on the Shanghai Stock Exchange's "special treatment" list. That could limit the daily trading movement of its stock to five percent from the standard 10 percent.
Some analysts say the company needs to find additional capital from the markets or from asset sales.
"A recapitalisation with the government taking up the additional shares might be the best way out," said Macquarie Securities analyst Janet Lewis.
A more permanent solution might be a sale of assets or a reorganisation, analysts said. One option could be to sell Cosco's container shipping business. Another would be to transfer the dry-bulk division to parent China Ocean.