August 30, 2012 4:43 am

Cosco expects pressures to continue

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Cosco©Bloomberg

China Cosco, the world’s fifth-largest shipping fleet by capacity, expects pressure on the shipping industry to continue during the second half of this year in a downturn that has kept the Chinese state-controlled company in the red for the past year and a half.

Cosco said that its net loss in the first half of the year was Rmb4.9bn ($770m), compared with a net loss of Rmb2.8bn during the same period last year. The Chinese shipping group, which controls the world’s largest bulk cargo fleet, has reported shipping-related losses of Rmb16.5bn over the past year and a half.

Cosco’s mounting debt stood at Rmb144bn, excluding container terminal lease commitments, according to calculations from Barclays.

Cosco’s Hong Kong share price was down 3 per cent mid-morning on Thursday following the results announcement made late on Wednesday.

Last year, Cosco was accused by shipowners of unilaterally reneging on contracted charter rates because of severe market conditions, a charge the company denied.

Cosco said in its results announcement that high fuel costs and overcapacity in the sector were key reasons behind the losses and presented a dim outlook for shipping during the second half of this year.

In the dry bulk sector, which includes the shipping of commodities such as iron ore, Cosco said that “excessive shipping capacity” would remain the primary challenge to the market in the second half of 2012, and added that “growth of global dry bulk shipping market will be constrained” by the addition of new capacity.

Likewise in the container shipping sector, Cosco warned that the “oversupply of shipping capacity will worsen”.

Analysts have begun to question whether Cosco’s rising pile of debt is sustainable. Barclays analyst Jon Windham wrote in a client note: “It appears that losses are far from done. With consistent cash losses from operations it is easy to see this ending poorly for shareholders.”

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