China Shipping Development plans to spend 23 billion yuan ($3.3 billion) to buy 59 vessels over the next five years, more than doubling its capacity to ride an anticipated upswell in global trade, its top executive said.
The oil and coal carrier, which is building up a fleet of more than 180 ships to meet the heavy resource needs of China's fast-growing economy, the world's fourth-largest, currently maintains a total capacity of 7.82 million dead-weight tonnes (dwt), Chairman Li Shaode told reporters on Wednesday.
The 59 vessels, to be delivered in the years until 2012, come with a collective capacity of 8.69 million dwt and will more than double the firm's shipping capability, he said. The amount to be spent exceeded previous expectations. Li told Reuters early this month that his firm, which began shipping iron ore for steel making last year, intended to spend about $2.8 billion over five years to double its capacity.
Li said the company would also scrap and replace ships more than 30 years old and the capacity loss would be made up by renting vessels from the market. "Our total capacity will be around 15 million dwt by 2012 including self-owned ships and vessels rented from the market," he said. "We aim to have about 30 percent of ships in our portfolio on leases," he added.
CAUTIOUSLY OPTIMISTIC: China Shipping is cautiously optimistic on its 2008 earnings and expects its first-quarter net profit to rise more than 50 percent from 1.05 billion yuan in the same period last year, Li said.
For 2007, its net profit rose 66 percent to 4.6 billion yuan, boosted by China's rising demand for oil, coal and iron ore to fuel its rapid economic growth. Turnover from coal shipments jumped nearly 90 percent in 2007 to 5.32 billion yuan and other dry bulk shipments more than doubled to 2.15 billion yuan, but oil shipment revenue fell 8.1 percent to 4.9 billion yuan.
Its total costs also increased 24 percent, however, due in large part to a 20 percent rise in fuel costs, which account for 40 percent of total costs. China Shipping plans to diversify into iron ore shipping and has ordered 16 iron ore carriers, including eight very large ore carriers of 300,000 dwt each.
"We placed the orders last year before steel plate price rises and have a price advantage," Li said. The company has signed service contracts with mainland steel companies for nine iron ore carriers.
It has also agreed with Baosteel Group to form a joint venture to own and operate six iron ore vessels with an aim to double the venture's capacity in the future, Li said. Shanghai Port Group and China Shipping will also form a joint venture to operate one iron ore vessel to service medium-sized and small steel companies in China, he added.