Pacific Basin Poised to Tap Into Market Recovery after Returning to Profit

Mount Aso during Sea TrialsImage Courtesy: Pacific Basin

Hong Kong-based owner and operator of dry bulk carriers Pacific Basin has returned to the black in the first half of 2018 thanks to the recovery of the dry bulk market.

The company booked a net profit of USD 30.8 million, a major rebound when compared to the USD 12 million net loss from the same period in 2017.

“The minor bulk freight market strengthened again in the first half of 2018 which, combined with our high laden utilization, continued outperformance and competitive cost structure, enabled us to record much improved positive results compared to the same period last year,” Mats Berglund, Chief Executive Office of Pacific Basin, said.

As a result, the company has recommended recommencing of dividend payments. The company’s board declared an interim dividend of HK 2.5 cents per share, in line with the dividend policy of paying out at least 50% of net profits excluding disposal gains for the full year.

According to Berglund, the improvement in the market for minor bulk shipping in the first half of 2018 is encouraging.

Clarksons Research estimates full-year net growth of 2.5% in global dry bulk capacity against 3.4% growth in dry bulk tonne-mile demand.

“Fundamentals are even more favourable for our Handysize and Supramax segments with minor bulk tonne-mile demand estimated to expand by 4% this year against combined Handysize and Supramax net capacity growth of about 2%. We are cautiously optimistic for a continued market recovery, although with some volatility along the way,” he commented.

As explained, moving forward, the 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.

“We see upside in secondhand vessel values and will continue to look at good quality secondhand ship acquisition opportunities as prices are still historically attractive, resulting in reasonable break-even levels and shorter payback times. Our healthy cash and net gearing positions enhance our ability to take advantage of opportunities to grow our business and attract cargo as a strong partner,” Berglund went on to say.

Speaking on the ongoing trade conflict between the United States and several of its trading partners, most notably China, Berglund said that the uncertainty weakens sentiment which could undermine trade, adding that 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,” he added.

With respect to the upcoming 2020 sulphur cap, Berglund said that Pacific Basin was assessing two main methods of compliance – low-sulphur compliant fuel oil versus scrubbers.

“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,” he pointed out.

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