COSCO loss deepens in H1

China COSCO Holdings Co, which owns the world's largest bulk cargo fleet, saw its losses in the first half of the year expand to 4.87 billion yuan ($767 million) amid an industry downturn, according to its filing to the Shanghai Stock Exchange Thursday.

The company posted a deficit of 2.7 billion yuan during the same period of 2011. For the whole year of 2011, it incurred losses of 10.45 billion yuan, making it the No.1 loss-making company on the A-share market last year.

"In the first half of this year, the capacity of global dry bulk cargo fleet increased 15 percent year-on-year, while demand growth was just 6.2 percent," the company said in the statement, noting that overcapacity will remain a serious challenge for the sector in the second half of the year.

Zhou Liwei, an expert at the China Classification Society, told the Global Times that so far there is still no clear sign that the sector will improve any time soon, and shipping companies may see further losses in the second half.

"The international shipping sector will continue to suffer as demand for commodities further slackens amid a global economic downturn," Zhou noted.

China Shipping Container Lines Co, another major shipping company, also posted its half-year financial report Thursday. Its net losses expanded to 1.28 billion yuan in the first half, nearly double the losses during the same period a year ago.

China COSCO invested heavily to build its shipping capacity in 2008, when international freight rates were at record highs. But as the economy further slows and the demand shrinks, the huge shipping capacity has become a big liability.

Currently, nearly half of China COSCO's bulk cargo vessels are rented from other shipping companies. Zhang Yongfeng, an expert at the Shanghai International Shipping Institute, told the Global Times that the rent for a vessel in 2008 was almost eight times the current rent, and the rent contract usually lasts three to five years.

In the second quarter of this year, China COSCO's losses were a bit smaller than the previous quarter's losses of 2.7 billion yuan, given a slight upturn in container shipping rates, the company said in the statement.

However, experts noted that the second half will still be tough for the sector, and China COSCO is very likely to report losses for a second consecutive year.

According to rules of the Shanghai Stock Exchange, if a company reports losses for two straight years, its shares will be listed as ST (special treatment) stock or junk shares. If the company continues to incur losses for a third consecutive year, it would face the risk of delisting from the bourse.

China COSCO's Shanghai-listed shares tumbled 1.24 percent to 3.98 yuan following its announcement of first half results, and its shares on the Hong Kong bourse dropped 3.49 percent to HK$3.04.