Pacific Basin, Hong Kong’s leading minor bulk player, emerged from the red to record a US$30.8m profit for the first half of 2018, compared to a US$12m loss in the same period in 2017.
As a result of the reversal of fortunes, Pacific Basin has recommenced dividend payments to shareholders of HK25 cents per share.
Unveiling the results Pacific Basin chief executive, Mats Berglund said:
“The minor bulk freight market strengthened again in the first half of 2018 which, combined with our high laden utilisation, continued outperformance and competitive cost structure, enabled us to record a much improved net profit of US$30.8. and EBITDA of US$99.3m for the half year.
“In view of the recovering market conditions and our return to a meaningful level of profitability, we are recommencing dividend payments in line with the dividend policy of paying out at least 50% of net profits excluding disposal gains for the full year.”
Earnings from the company’s handsize and surpramax fleets increased over the period, enabling the company to improve underlying profit of US$28. Compare to a loss of US$6.7m Jan-to June 2017. The contributory factors were improved markets, continued outperformance and vigorous cost controls.
Average handysize and supramax TCE earnings of US$9,750 and US$11,730 per day net were up 23% and 32% year-on-year, outperforming the BHSI and BSI spot market indices by 19% and 11% respectively.
During the period Pacific Basin continued to grow its fleet with the last of five ships arriving in January 2018. I April 2018, a second-hand vessel was acquired for cash. In May 2018 the company signed up for four more vessels for US$88.5m to be 50% funded by equity. Upon delivery of all acquisitions the fleet will total 111 ships.
Looking to the rest of the year, the company declared: “The favourable outlook for widely-spread global GDP growth bodes well for dry bulk demand, and supply is expected to be kept in check by the continued gap between newbuilding and secondhand prices and the uncertain impact of new regulations on ship designs, both of which cause many shipowners in our segments to refrain from ordering new ships.”
Thus far Pacific Basin remains unfazed by the possible impact of the trade disputes, stating: “Trade dispute actions to date impact only a small fraction of the trades in which Pacific Basin is engaged.
“The conflict between the US and its key trading partners might get resolved but may also escalate. This uncertainty weakens sentiment which could undermine trade, and a global trade war could impact global GDP and dry bulk demand. However, we continue to believe that any negative impact these protectionist actions have on the dry bulk trade will be largely outweighed by positive dry bulk supply fundamentals and continued global dry bulk trade growth overall.”
Amidst a surge of marine scrubber orders in the industry to meet the requirement for the upcoming 0.5% sulphur cap, which takes effect on 1 January 2020, Mr Berglund appears to have taken a very slight step backwards from his position in March 2018. At the time Mr Berglund declared: “We do not think that sulphur scrubbers are an effective solution either technically or environmentally.” He added: “We much prefer a mandate to use low sulphur fuel and the level playing field, lower speeds and lower emissions (including CO2) this would support,”
Three months later Mr Berglund said on Friday: “We continue to assess the two main methods of compliance – low-sulphur compliant fuel oil versus exhaust gas cleaning systems or “scrubbers” – and are preparing ourselves for this significant change.
“Some owners of larger vessels, including some Supramax owners, are planning to install scrubbers. However, we expect the majority of the global dry bulk fleet, especially smaller vessels such as Handysize ships, will comply by using more expensive low-sulphur fuel, which would also lead to lower operating speeds and thereby contribute to a more favourable supply/demand balance.”