STX dry warning

Likely newbuilding delays or cancellations due to difficulty in securing credit, however, could provide the stimulus for a recovery, the South Korean owner also contends.

STX made the comments in its third-quarter result announcement which saw strong sales gains wiped out by massive foreign exchange losses as profit dropped.

The Korean pointed out that the “global meltdown in the credit market led to a severe decrease in demand in the commodities market and construction industry, which in turn caused a sharp downturn in seaborne trading volume, especially dry-bulk cargoes such as iron ore or coal”.

It also blamed “speculative capital invested in the shipping market” for aggravating a shortage of liquidity.

Weakening demand for iron ore in particular has ravaged the capesize and panamax sectors as Chinese steel mills cut back on production. A stand-off between the Chinese mills and Brazilian mining company Vale over the price of iron ore has also aggravated the situation.

“In the current soft demand situation, the dry-bulk shipping market may stay low or fall for some time if vessels supply growth accelerates from [the fourth quarter of 2008],” STX warned.

“The extent of the downturn will largely depend on supply/demand imbalances.”

However, the Korean also cited the well-aired theory that the credit crunch is likely to put paid to numerous ship orders and accelerate scrapping, thus reducing capacity in the dry-bulk sector in particular.

“If [these] upside factors are successful in stabilising the global economy, the dry bulk market may bottom out earlier than expected despite the current unfavourable situation, and we may then see a slow but gradual rebound in the industry.”

A combination of “stable income streams” for its bulker fleet and good margins from its non-bulk segment produced a large increase in third-quarter revenues at STX from $1.4bn to $2.6bn.

However, this was not enough to stop net profit falling from $143.7m a year ago to $131.5m this time around as STX lost out in the forward freight agreement (FFA) market and on foreign exchange deals.

FFAs cost the company $11.3m in the period compared to a gain of $18.87m a year ago while it also booked a foreign exchange loss of $87.3m.

Much of these losses were recorded under finance costs which hit $80.73m as against just $1.27m a year ago.

As sales rose sharply understandably the cost of sales also soared from $1.24bn to $2.37bn.


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