S. Korean shippers to face rough sailing this year

SEOUL, Feb. 13 (Yonhap) -- South Korean shipping lines are expected to face rough waters this year as the global economic downturn is likely to last longer than expected, further reducing shipping demand, analysts said Friday.

The gloomy outlook comes amid speculation that the shipping industry might have
already hit bottom and is now set to rebound from the recent downswing, as a key
barometer of commodity shipping rates continued to climb.
The Baltic Dry Index (BDI) topped the 2,000-mark on Thursday for the first time
in four months, after breaking through the 1,000-mark on Jan. 27. BDI uses 1985
as the base year with 1,000.
Analysts warn that it is still too early to say whether the industry is set to
recover.
"The rising BDI is very positive, but the global economic slump is still underway
and so it is hard to declare definitively that the shipping industry has hit
bottom," said Song Jae-hak, an analyst at Woori Investment & Securities.
Samsung Securities analyst Park Eun-kyong also noted that although the BDI has
surged recently, it has remained relatively low over the long-term while downside
risk is still high.
The index hit a record of 11,793 on May 20 last year before plunging to as low as
663 on Dec. 5 as the global economic downturn reduced shipping demand.
According to the Korea Shipowners' Association, demand for iron ore and coal from
China and other regions is steadily rising on the back of a string of massive
economic stimulus packages, which could help boost the BDI to above the
3,000-mark.
South Korea's shipping lines logged hefty profits last year as shipping demand
remained strong.
Hanjin Shipping Co., the nation's No. 1 shipper, last week reported that its
profits more than doubled to 320 billion won (US$229 million). Hyundai Merchant
Marine Co., the No.2 player, also said its net profit rose to a record 704
billion won last year from 177 billion won a year earlier.
Other analysts also remained cautious about the short-term outlook for shippers
as the global economic downturn is expected to shrink demand for bulk carriers of
coal, iron ore and other commodities.
"A meaningful turnaround of the shipping industry will rely on whether other
industries like the automaking sector will recover," said Lee Jae-won, an analyst
at Tong Yang Investment Banking.
Lee forecast the BDI would remain at around the 1,300 to 1,400 level this year.
STX Pan Ocean Co., the nation's largest bulk-shipping line, and Korea Line Corp.
are the most vulnerable to the global shipping cycle as they are heavily
dependent on bulk carriers, according to analysts.
"Although Hanjin and Hyundai Merchant have diversified their business lines, they
also face tough times as well," Song added.
Analysts point out that low shipping rates and increased competition could also
force some shipping lines out of the market.
Last week, Samsun Logix Corp., the nation's 7th-largest shipper, filed for court
receivership, citing a severe liquidity shortage. Some European shipping
companies are reportedly facing similar problems.
Hanjin Shipping said last week that it plans to liquidate its German unit Senator
Lines GmbH as shipping rates have collapsed amid the global recession.
"All shipping companies are now struggling to weather the current situation,"
said Yang Ji-hwan, an analyst at Daishin Securities. "In particular, it is a hard
time for second-tier players whose business portfolios are not diversified."
Shin Min-seok, an analyst at Daewoo Securities, echoed that sentiment, saying
large shipping companies will also see their earnings decline from the first
quarter of the year.
sam@yna.co.kr