News

14 May 2008

Mitsui O.S.K. Lines Ltd., Japan's second-largest shipping line by sales, will exceed its first-half operating profit forecast by ``several billion yen'' as it charges more to transport coal and iron ore. Daily charter rates for the company's largest ships are higher than forecast, which will help it surpass its estimate of 140 billion yen ($1.3 billion), Kenichi Yonetani, a managing executive officer at Mitsui O.S.K., said in an interview in Tokyo yesterday. Mitsui O.S.K is benefiting from China's demand for iron ore as the country builds more cars, ships and factories. China's economy grew at the fastest pace in more than a decade last year and the country's imports of iron ore jumped 17 percent, the China Metallurgical Mining Enterprise Association said in April.
``Given the increase in rates, it wouldn't be unusual to see profits come in higher than forecast,'' said Osuke Itazaki, an analyst in Tokyo at Credit Suisse Group.
Mitsui O.S.K rents 22 of its 100 large so-called ``capesize'' vessels at daily rates. It can quickly raise prices for those ships in response to fluctuations in demand. The other ships are contracted out for longer periods with fixed rates.
The Baltic Dry Index, a measure of commodity-shipping rates, last week rose to the highest this year. It rose 53 percent to 10,220 in the past 12 months and touched a record 11,039 in November.
`Strongest' in History
``The strongest dry-bulk commodities market in history is extending this run of higher prices,'' said Yonetani. ``Operating profit is likely to exceed our expectations.''
The company plans to add 53 iron-ore carrying ships to its fleet over the next six years, it said today in a statement. Mitsui O.S.K. currently operates 125 such ships and plans to retire some of the older vessels. It had 364 bulk commodity ships in its fleet at the end of March.
The daily charter rate for a capesize ship was $184,950 yesterday, according to figures from the London-based Baltic Exchange. That's about 68 percent higher than Mitsui O.S.K.'s average forecast of $110,000 for the fiscal year stared April 1.
Mitsui O.S.K forecasts net income to rise 20 percent to 104 billion yen in the fiscal first half ending Sept. 30, as sales increase 7.4 percent to 1.01 trillion yen.
Higher-than-expected prices for transporting oil will also boost profits, Yonetani said.
The cost of shipping crude oil from the Middle East to Asia, the busiest route for supertankers, has soared as the use of ships for storage is trimming vessel supply.
A Baltic Exchange composite index of rates for transporting oil to Japan from the Middle East was 205.54 yesterday, almost double Mitsui O.S.K.'s prediction of 110 for this fiscal year. The shipping line rents 10 percent of its fleet of 35 very large crude carriers, or VLCCs.
``The tanker market has improved,'' said Yonetani. ``Tanker rates will help boost profits this fiscal half.''
Mitsui O.S.K. rose 3 percent to 1,500 yen at the close of trading today in Tokyo.