Nippon Yusen Raises Profit Forecast Shares Surge

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Jan 2008

Nippon Yusen K.K., Japan's largest shipping line by sales, raised its profit forecast to a record after third-quarter earnings almost doubled on higher rates. Shares surged the most in three months.Nippon Yusen expects full-year net income of 120 billion yen ($1.12 billion) compared with an earlier forecast of 111 billion yen, it said in a statement today. Third-quarter net income almost doubled to a record 38.1 billion yen in the three months ended Dec. 31, from 19.1 billion yen a year earlier.Prices for transporting iron ore and other commodities were more than twice as much as a year ago as China's economic growth spurred demand for ships to carry raw materials. The Tokyo-based company was able to avoid a recent slump in transportation rates after locking in prices with multi year shipping agreements.''The ratio of long-term contracts is higher than rivals and so it managed to boost profit regardless of the very volatile market,'' Masayuki Kubota, who helps oversee the equivalent of $2.3 billion in assets in Tokyo at Daiwa SB Investments Ltd. ''The company's shares look cheap.''Nippon Yusen rose 8.1 percent, the most since the shipping line raised its profit forecast last quarter, to close at 825 yen as of the 3 p.m. end of trading on the Tokyo Stock Exchange. Kubota is considering buying the shares, he said.'Very Strong'Mitsui O.S.K. Lines Ltd., Japan's second-largest shipping company by sales, gained 3.7 percent to 1,231 yen and Kawasaki Kisen Kaisha Ltd., the third-largest, advanced 5.5 percent.China's economy expanded 11.2 percent in the three months ended Dec. 31. The nation's demand for coal and iron ore, used to make steel, pushed shipping rates to a record last year. The country's appetite for commodities is unlikely to decline in coming months, Nippon Yusen said.Sales surged 24 percent in the quarter to 680.7 billion yen, from 548.6 billion yen a year ago.''The bulk market was very strong,'' said Makoto Igarashi, a corporate officer at Nippon Yusen. ''Demand from China hasn't changed.''The Baltic Dry Index, a benchmark for the price of shipping bulk commodities surged 147 percent to an average of 10,304 in the quarter, compared with 4,166 a year earlier.Locked In Rates''Shipping rates were very high compared with a year earlier,'' said Yoshihisa Miyamoto, an analyst at Okasan Securities in Tokyo.The index has tumbled in recent months on concern a global economic slowdown will slow growth in China. It fell 48 percent in recent months, after rising to a record 11,039 on Nov. 13.A combination of long-term contracts and a system of booking payments on delivery rather than when contracts are signed helped earnings, Nippon Yusen's Igarashi said. Last year's net income was 65 billion yen.Nippon Yusen has more than 90 percent of its Capesize vessels, totaling 115 at the end of March, on medium or long- term contracts, according to spokesman Satoshi Hoshino.Voyages typically take 40 days and so ships due to deliver at the end of March would set sail around the middle of February, with contracts signed by the end of January, allowing Nippon Yusen to predict income and costs over the period, Igarashi said.A gain in fuel prices over the quarter cut 13 billion yen off current profit compared with a year earlier.The average price of 380 Centistoke marine bunker fuel, used by ships, surged 69 percent in the three months ended Dec. 31, to $467.67 a metric ton compared with $277.45 a year earlier, according to data compiled by Bloomberg.The company predicts bunker fuel will average $480 a metric ton in the fourth quarter. It traded at $454.5 yesterday.Every $1 increase from the company's forecast will cut 350 million yen from current profit, Nippon Yusen said.