Hong Kong-based minor bulk specialist Pacific Basin saw first half net profit fall to US$8.2m, an underlying loss of US$0.6m, from a 2018 1H figure of US$30.8m as a crowd of adverse conditions battered the trade.
The company said the traditional Chinese New Year dip was deeper than usual and was followed by only a partial recovery, due in part to the US-China trade war and African Swine Fever impacting soybean imports to China. Flooding in the Mississippi River dragged on grain exports from the US, and damage to mining infrastructure disrupted Brazilian iron ore exports.
Pacific Basin’s chief executive, Mats Berglund commented: “Our results for the first half of 2019 were supported by our robust customer-focused business model and competitive cost structure, but adversely affected by markedly weaker dry bulk freight market conditions.”
During the period Pacific Basin took delivery of six second-hand vessels, including one handysize and five supramaxes, while completing the sale of a small handysize. The size of the owned fleet no stands at 115 ships. By including chartered ships Pacific Basin operated an average 230 handysize and supramax vessels over the period.
Mr Berglund outlined the company’s current credit position: “We secured a US$115m revolving credit facility at a competitive interest cost of LIBOR plus 1.35%, and we are repaying our US$125m convertible bonds. Our healthy cash and net gearing enhance our ability to take advantage of opportunities to grow our business and attract cargo as a strong partner.”
The IMF expects the global economy to gradually strengthen in the second half of the year and into 2020, partly as a result of Chinese economic stimulus and continued loose monetary policy in the United States and Europe. As published in July, the IMF forecasts global economic growth of 3.2% in 2019 and 3.5% in 2020.
Uncertainty over new environmental regulations and the gap between newbuilding and second-hand prices continue to discourage new ship ordering, and the small handysize orderbook continues to be a positive factor for the health of Pacific Basin segments in the medium term.
The dry bulk freight market should benefit in the second half of 2019 and early 2020 from many larger ships being taken out of service for several weeks for scrubber installation.
“We believe the market for smaller dry bulk ships like ours will benefit also over the longer term, as they will consume more expensive low-sulphur fuel and therefore tend to operate at slower speeds which reduces supply,” the company said.
Clarksons Research estimates combined handysize and supramax net fleet growth of around 2.3% for 2019 and 1.3% for 2020 despite limited scrapping, while minor bulk tonne-mile demand is expected to grow more than 4% in 2019 and 2020.
“We expect to see seasonally stronger freight market conditions in the second half of 2019, although with continued volatility influenced by further uncertainty about the US-China trade war, slower economic growth than in recent years and the impact of African Swine Fever on soybean imports to China,” Pacific Basin added in its results statement
Key catalysts for improvement on the demand side are expected to include the onset of the Black Sea grain export season and a return to normal levels of grain traffic out of the Mississippi River and iron ore exports from Brazil. Market rates have been firming, especially in the Atlantic.
Pacific Basin said it sees the company well placed for the medium to long term:
“We still see upside in second-hand vessel values and will continue to look opportunistically but cautiously at acquiring good quality second-hand ships, where prices are attractive.
“This year heavily influenced by preparations for new environmental regulations. At the same time, several one-off market disruptions caused a pause in market momentum during the first half of the year.
We have chosen to position many of our owned ships for dry docking this year to install ballast water treatment systems on our Handysize and Supramax vessels and scrubbers on a majority of our Supramaxes to set us up for what we believe will be stronger years ahead.”
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