Pan Ocean Bullish on Earnings amid Market Recovery

Singapore-listed dry bulk owner and operator Pan Ocean booked higher profits in the third quarter of 2018 reaping fruits of stronger market.

Namely, the company recorded USD 38 million profit in 2018 3Q, against USD 36.9 million a year earlier. For the nine-month period profit was up by USD 25 million year-on-year standing at USD 107 million.

Pan Ocean said that tonnage supply was marginal during the first nine months of the year, while demand for commodities picked up from the lows recorder over the past few years. The average Baltic Dry Index (BDI) was 1,349 points during the period, up by 31% from 1,030 points in the same period of 2017.

During the three quarters of 2018, the newbuilding deliveries reached 22.7 million dwt, down by 35% from 37.8 million dwt in the same period of 2017. However, as the market returned to healthy level in 2018, the scrapping volume of the bulkers dropped to 3.1 million dwt from 12.4 million dwt on a like-for-like basis. As such, the fleet supply growth could be 2.7%.

Demand was driven mainly by China’s iron ore imports due to domestic demand boom and strong environment regulations, and China’s and India’s coal imports which increased by 13% year-on-year to 386.24 million tons due to the expansion of urbanization and the increase in thermal power production. Global grain trade was also seen substantial rising, Pan Ocean added.

The company estimates that the total dry bulk cargo trade growth could increase in 2018 to 3%, with the trade volume reaching 5,278 million tons.

“The demand in the rest of 2018 will continue to strengthen with Chinese demand for high-grade imported iron ore especially from Brazil and Asian developing countries’ coal demand such as China and India,” Pan Ocean said.

“Meanwhile, although US exports of soybeans to China are declining due to the US-China trade war, rising imports of US soybean from Europe and Northeast Asia would offset the impact of decreased exports to China.”

“In conclusion, the demand growth will outweigh fleet expansion like last year. Accordingly, earnings in the dry bulk market are expected to improve in the rest of 2018.”

When it comes to the outlook for 2019, Pan Ocean estimates the fleet growth to be about 2.8% compared to 2018.

Next year is likely to see an uptick in demolition of aged vessels and increase of non working day caused by BWMS and scrubber retrofitting owing to IMO’s regulations, helping ease the fleet growth rate.

As for the 2020 sulphur cap, Pan Ocean plans to comply with the new regulation by combining low sulphur fuel and scrubbers on its vessels. The company said eight vessels on charter with Vale would use scrubbers to meet 2020 sulphur cap together with two ships chartered out to POSCO, while the remaining 17 ships would burn LSFO.

Pan Ocean has 17 ships on order, plus one option. These include 5 open hatch bulkers, six VLOCs, two loggers, two Ultramaxes + one option, and two 1,800 TEU containerships.