The Hindu Business Line : Strong Q2 accelerates shipping cos

PROPELLED by an unprecedented surge in the tanker as well as bulk freight markets, reduced tax liability in the new tonnage tax regime, increase in tonnage and better fleet utilisation strategies, major shipping companies reported a more than 100 per cent increase in net profit during the quarter, thereby, reiterating market confidence in the sector.

All shipping companies benefited from the surge in freight market. In fact what has surprised even some of the shipping companies has been the surge in VLCC rates, which have touched an all-time high of $1,50,000 per day in the spot market. Other tanker rates, including the once sluggish wet cargo rates, have also moved in tandem. However, even though this does augur well for the industry, there is a growing perception that the rates are unsustainable.

"The shipping industry is a cyclical industry and currently the trend is in favour of ship owners. Even though there are concerns over the increase in crude prices leading to a slackness in demand post winter, the world economy is growing at such a momentum that demand for oil will always remain high. Needless to say rates for transportation will remain high but not necessarily at these levels," reasoned a senior analyst with a domestic brokerage.

Yet, the slight subduing of trends notwithstanding, major shipping stocks are expected to remain healthy on the bourses in the near future. Analysts believe that Q3 results will better the second quarter numbers.

According to analysts, leading the pack in terms of earnings potential is Shipping Corporation of India (SCI), which reported a 162-per cent increase in net profit at Rs 210 crore (Rs 80 crore). "Despite no increase in fleet, the company reported such a jump. In comparison, Great Eastern Shipping which has seen a 150 per cent increase in fleet, reported a 109 per cent increase in net profit at Rs 167.18 crore. However, this is not as commendable given its 71 per cent rise in net income at Rs 497.78 crore," said a senior analyst.

Mr Bharat Sheth, Managing Director, GE Shipping, said the continuing high levels of oil demand commensurate with increasing oil supply from the West Asian OPEC members aided to the share of long haul trade, while the tight tonnage availability in the light of the increased volumes enabled the tanker freight rates at high levels.

"With winter setting in and with low oil inventories, particularly in the US, demand for oil is expected to stay strong. OPEC has announced a further increase in oil production by one million barrels per day effective November 1. And with anticipated weather delays and tight demand/supply situation, tanker freight rates are expected to remain volatile but with a firm undertone," he points out.

The stock of SCI ended at Rs 170.30 with around 7.74 lakh shares traded on the BSE. GE Shipping ended at Rs 173.70 up 1.3 per cent with around 1.34 lakh shares traded on the BSE.

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