The two largest tanker owners in China have posted strong nine-month results and are set to end 2020 with strong full-year profitability – but their outlook has grown uncertain amid weak rates.
With revenues from many spot charters fetched in the second quarter – when freight rates hit all-time highs – only being recorded for the third, China Merchants Energy Shipping (CMES) and Cosco Shipping Energy Transportation (CSET) continued to enjoy strong profitability.
CMES's net profit increased to CNY 933m ($139m) for the third quarter, up from CNY 418m in the same period of last year. CSET saw its profit improve to CNY 378m from CNY 101m.
Shanghai-listed CMES saw net profit for the first nine months of the year amount to CNY 3.98bn, compared with CNY 1.05bn for the same period of 2019. Revenue rose to CNY 14.2bn from CNY 13.1bn.
Compatriot CSET saw net profit for the first nine months of the year amount to CNY 3.32bn, compared with CNY 583m for the first three quarters of 2019.
Revenue at the Shanghai- and Hong Kong-listed company increased by 26.1% to CNY 13.3bn.
Strong coverage
In its quarterly report, CMES suggested its result benefited from healthy time-charter coverage secured earlier this year.
“The third quarter was traditionally a weak season for oil tankers and hit by the supply reduction of Opec+ and coronavirus pandemic in the West,” said the company, part of state conglomerate China Merchant Group.
“But We have actively managed the volatile market conditions. We locked in quite some revenue days in the first half of the year, when freight rates were strong.”
In addition, CMES said the profitability of its dry bulk and ro-ro businesses have started to recover since July.
Fleet expansion
CSET, which also owns a large LNG fleet, said it was riding on continued fleet expansion when shipping markets were strong.
“Freight markets were stronger for the period between January and September compared with the year prior, and we had more shipping capacity,” the company said in a quarterly report.
Part of state-owned China Cosco Shipping, CSET recorded shipping volume of 121m tonnes for the nine months, up 3.13%.
“On a full year basis, we expect that our net profits for 2020 will show strong growth from last year’s level,” CSET said.
“This is mainly because the main tanker types are forecast to have stronger earnings in the international markets.”
But some analysts suggested the company’s outlook has weakened as spot tanker markets are bearish.
“The company’s third quarter results met out expectation…But the traditionally strong fourth quarter is turning out to be lacklustre,“ China International Capital said in a research note.
“CSET may start to feel the pressure from the first half of next year, with low oil demand globally due to the pandemic overseas. It will take some time to destock from the oil inventories, and tanker demand will stay depressed during the process.”
