Mitsui OSK to beat H1 profit target

Mitsui OSK Lines Ltd, operator of the world's biggest fleet of bulk carriers for shipping commodities, yesterday said that a weak yen, a fall in oil prices and strong freight rates in the first half could push its April-September profits above its earlier estimates.

Kenichi Yonetani, senior managing executive officer at Mitsui OSK, also said that the company expects the sea freight market - which sank to an 18-month low yesterday on worries about falling commodity prices - to recover after holidays in China in mid- October.

'Our April-September first-half earnings could top our estimates, given the favourable yen rate, a decline in oil prices and the strong freight rates in the first half,' Mr Yonetani told Reuters in an interview.

'Demand for iron ore in China remains solid. A large number of infrastructure projects are underway, unaffected by the credit crunch,' he said.

Japan's second-biggest shipping line in sales terms is the biggest beneficiary of strong demand for bulk shipping of iron ore, with a fleet of more than 100 capesize bulk ships.

It aims for a pretax recurring profit of 320 billion yen (S$4.3 billion) in the year to March 2009, up 5.9 per cent and a sixth consecutive year of record profits.

But shares of Mitsui OSK have been battered by a sharp drop in a key sea freight index for global raw materials trade amid stormy financial markets, falling commodity prices and worries over world economic growth.

The stock finished down 4.8 per cent at 1,078 yen yesterday, compared with this year's high of 1,682 yen hit on May 20.

Mr Yonetani said that the average Capespot rate, or the charter rate for capesize bulkers, has tumbled 70 per cent to US$66,000 per day since its peak in June.

But he said that the company's earnings are relatively unaffected by fluctuations of the rates as only 15 of its bulk ships are currently exposed to the spot market, with the rates for the rest already fixed under long-term contracts.

In July, Mitsui raised its half-year profit forecast to 170 billion yen from 152 billion yen.

Mitsui also upgraded its full-year pretax profit estimates at that time, while its peers Nippon Yusen KK and Kawasaki Kisen Kaisha Ltd stood by their forecasts.

Masafumi Yasuoka, senior managing executive officer at Mitsui OSK, also said in the interview that he expects the Capespot rate to recover in the October-March second half, averaging around US$100,000 a day, slightly below its assumed rate for the second half of US$110,000.

'Brazilian miner Vale's halt on shipments of iron ore to China, due to the disagreement on prices, is one reason for the plunge in charter rates, in addition to the suspension of plant operations in China due to the Olympic Games,' he said.

Slowing US and European economies, however, could derail Mitsui's plan to book a seven billion yen pretax profit in the container shipping division during the year, Mr Yonetani said.

'The business is slower than expected in both the Asia-US and Asia-European routes,' he said. 'Still, we are hopeful that we can secure a profit,' he said.

Mr Yonetani added that the company would be able to meet its full-year pretax recurring profit target of 320 billion yen even if the charter rate stays at the current low levels of US$66,000.