Shippers buoyed by rising freight rates

International dry bulk shipping rates have been rising steadily over the past several weeks, but analysts are skeptical about whether the current trend will develop into a meaningful recovery and enable China's loss-making shipping companies to improve their balance sheets.

The Baltic Dry Index (BDI) - a gauge measuring freight prices for shipping dry bulk commodities like grain, iron ore and coal - ascended for 11 straight working days to close at 1,090 points Friday, up 19 percent from 916 points on November 8.

The climbing freight benchmark is believed to have given an overall lift to mainland-listed shipping shares last week. Shanghai-listed China COSCO Holdings Co jumped 6.25 percent week-on-week to 4.25 yuan ($0.68), well above the gain of 0.63 percent posted by the Shanghai Composite Index over the same period.

Yet, given the shipping industry's ongoing problems with overcapacity, the recent rebound in the BDI may be too short-lived to help Chinese shippers regain their former levels of profitability, Zhou Dequan, deputy director of the Shanghai International Shipping Institute's Shipping Market Analysis Department, told the Global Times.

"This freight rise may be because China's large-scale steel companies are stocking up on iron ore for the winter in preparation for the upcoming Spring Festival period, when several weeks could elapse with few purchases of raw materials," Zhou explained. "The dry bulk shipping market has recorded temporary bounces several times this year, mainly thanks to volatile demand increases."

The BDI dropped to a record low of 647 points on February 3, down from 1,624 points at the beginning of this year, before rebounding 79.60 percent to 1,162 points in early July.

"Generally speaking, the current BDI is still low relative to its historic peak of 11,793 points recorded in May 2008," Zhou noted.

Although the BDI alone is not enough to make a judgment about the profitability of a shipping company's dry bulk cargo business, Chinese shippers like COSCO, which locked into long-term high-cost vessel leases years ago, are unlikely to see any profits under current freight levels, he added.

COSCO, which signed expensive multi-year contracts to charter additional vessels during the height of the 2008 shipping boom, announced a deficit of 6.4 billion yuan during the first three quarters of this year. Meanwhile, Nanjing Tanker Corporation, another major domestic shipper, reported 941 million yuan in losses during the same period.

Since COSCO and China Shipping Container Lines Co (CSCL) both suffered losses last year as the global shipping industry slowed, their shares could receive special treatment marks if they fail to realize a profit this year. Nanjing Taker Corporation has already been hit by a delisting warning (*ST) and may soon be blocked from trading at the Shanghai Stock Exchange.

In a filing with the Hong Kong Stock Exchange on November 19, CSCL announced plans to sell 139,941 containers for $358 million, a move which is widely believed to be aimed at raising capital to avoid being listed as an ST share.