Norden Sees Commodity Shipping Costs Remaining Low Into 2012

D/S Norden A/S, Europe’s largest publicly traded commodities-shipping company, said charter rates for bulk carriers will stay at low levels into 2012 as excess vessel supply cuts the amount owners can charge.

“It will be challenging into the rest of this year and into next year,” Chief Executive Officer Carsten Mortensen said in a phone interview after the company reported an 88 percent slump in second-quarter profit. He declined to forecast when freight rates will rebound.

An influx of new bulk carriers depressed freight rates even as global demand for the raw materials that Norden ships rose between 5 percent and 6 percent in the first half of 2011, Mortensen said.

The Baltic Dry Index, an overall measure of commodity transportation costs, averaged 1,379 points, or 58 percent lower in the quarter compared with the same period last year. Hellerup, Denmark-based Norden kept its 2011 profit forecast before interest and tax in a range between $55 million and $95 million, it said in an earnings statement today.

Net income for the three months through June dropped to $10 million from $83.3 million a year earlier, it said. Profit was lower than the $24.7 million mean estimate of 11 analysts surveyed by Bloomberg.

Second-quarter revenue from dry-cargo shipping fell 12 percent to $458.5 million from $525.9 million a year earlier, according to the company. Income from Norden’s fleet of 38 product tankers, which ship refined goods like diesel and jet fuel, was 72 percent higher at $102.6 million.

Tanker Earnings

Exports of refined products from the U.S. Gulf and strong demand from South America and Africa boosted tanker earnings in the quarter to levels that are expected to be higher on average than the two previous years, Norden said.

Rates for medium range tankers that haul refined products averaged $9,160 a day in the three months ended June 30, from $6,361 a year earlier, according to data from Clarkson Research Services, a unit of the world’s largest shipbroker.

Norden is moving to contracts of affreightment with miners and traders to transport cargo rather than renting out its ships for set amounts of time, Mortensen said. The new deals, or contracts of affreightment, will be based on shipping specific amounts of cargo to and from particular ports over a longer period of time.

China’s role as the driver of dry-bulk demand, along with strong raw materials prices, suggested customers were sheltered from economic problems in Europe and the U.S., he said.

Shares Fall

“There may be some bumps on the way or Chinese politicians may wish to dampen the growth a little bit but the long-term trend is clear and we are very confident for the next five to 10 years,” he said.

Norden fell 10.70 kroner, or 7 percent, to close at 142.30 kroner in Copenhagen trading, the lowest level since Dec. 5, 2008. The drop reduced its market value to 6.12 billion kroner ($1.2 billion).

RS Platou Markets said today that Norden’s second-quarter figures were slightly weaker than expected. “However, the company remains well positioned with limited debt and 94 percent dry bulk contract coverage for 2011 and 50 percent for 2012,” equity research shipping analyst Frode Morkedal wrote in an e-mailed note.

Norden owns 132 bulk carriers and operates 13, with a further 41 ships on order, according to its website, updated on Aug. 15. Ninety-four percent of the fleet is chartered for the rest of the year, the company said.

Break-Even Rates

The average amount each bulk carrier earned in the three months to June 30 was $18,640, higher than the $13,040 the dry-cargo fleet needs to break even in 2011, according to the company. Cash break-even rates will fall to $11,217 a day in 2012, the company said.

The tanker fleet earned $14,989 per ship during the second quarter and needs $11,195 a day to break even in 2011, declining to $10,648 in 2012. Thirty-seven percent of the fleet is chartered for 2011, the company said.

The owned fleet was worth $1.7 billion at June 30, according to the company.

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