Cosco Shipping Energy Transportation (CSET) booked a provision of CNY 10m ($1.41m) for charter compensations related to US sanctions on one of its main subsidiaries amid otherwise strong performance for 2019.
In its annual report, the tanker arm of state conglomerate China Cosco Shipping revealed its clients may have faced losses as they needed to find replacement tonnage.
Cosco Shipping Tanker (Dalian) was on Washington’s sanctions list between 25 September and 31 January for allegedly transporting Iranian oil.
“Some clients that had sealed shipping contracts with us may have had to find other ships and faced charter losses,” CSET said.
“Based on the principle of prudence, we booked the provision according to the differentials between contract and market rates.”
No further details on the company’s charter parties were disclosed.
Fourth-quarter losses
With a fleet of nearly 170 oil tankers and 38 LNG carriers, CSET has clients across the global via spot and period charters, contracts of affreightment and other types of shipping deals.
The US sanctions had taken Cosco Dalian's fleet of 42 tankers, including 26 VLCCs, out of international trading. Operations of China LNG Shipping, a 50:50 joint venture between CSET and China Merchants Energy Shipping, were also affected for some time.
Calculations based on company reports suggested CSET suffered net losses of CNY 151m in the fourth quarter.
However, on a full-year basis, the company achieve net profits of CNY432m in 2019, in line with its previous forecast. This compared with the 2018 level of CNY 105m.
Revenues increased to CNY 13.9n from CNY 12.3bn.
“We managed to increase revenues from the highly profitable VLCC trades,” CSET said. “We were also working more with private refiners in China.”
“Our LNG shipping capacity continued to rise and brought in stable profits.”
Strong outlook
Looking forward, CSET said it would take advantage of strong tanker markets amid fleet expansion despite the coronavirus pandemic.
“While the Covid-19 outbreak will weigh on global economy, the price war between oil producers…can lead to more crude supply and result in more shipping demand,” CSET said.
“The US-China phase-one trade agreement may also prompt more energy trade, creating tonne-mile demand.”
In 2020, the company is due to take delivery of 11 newbuilding tankers totalling 1.84m dwt and three LNG carriers with 522,000 cbm.
CSET expects group-wide cargo turnover to increase to 550bn tonne-miles this year from 441bn tonne-miles in 2019. It predicts operating income of CNY 15.5bn and expense of CNY 13bn in 2020.
With healthy VLCC earnings, Shenyin & Wanguo Securities forecasts net profits of CSET will amount to CNY 8.95bn in 2020 in an even more bullish view.
“The VLCC supply is tight as global storage facilities are filled up due to contango play,” the Chinese brokerage said.
“Even if actual shipping volume may fall, the removal of VLCCs [for floating storage use] will keep daily earnings at an elevated level.”
