Coal hold-ups spur demand for new ships

China Shipping, the country's No 2 sea transport operator, will buy 39 ships this year for 8 billion yuan ($1.3 billion) as a booming economy and coal railway bottlenecks spur demand, a top executive says.

The state-run company is the parent of China Shipping Container Lines and oil and coal carrier China Shipping Development. "[Premier] Wen Jiabao expects GDP growth of 8 per cent this year. I expect growth will be higher," Li Kelin, president of China Shipping, said.

Global shipping rates have reached record highs during the past year as China's manufacturing machine sucks in raw materials and cranks out finished products.

Li said total container throughput in China might rise by 20 per cent this year.

The group's shipping prices were likely to rise by up to 4 per cent this year, driven by rising rates for moving oil.

A lack of sufficient rail transport for coal, which fires most of China's power plants, would mean more business for shipping firms.

"Existing transport capacity in China is inadequate to meet demand for coal," said Li. "This situation will last two to three years."

China Shipping's fleet numbers 417 ships, including 90 oil tankers and 120 container vessels. Six of the new ships will be oil tankers. The additional vessels will add 2.2 million tonnes capacity.

The group will finance the acquisitions with bank loans and existing funds.

China Shipping Container Lines went public in an IPO last year that raised US$985 million ($1.33 billion) and Li said the company was on track to increase volume by 35 per cent this year to 350,000 TEUs (20ft or 6m equivalent units) - ahead of the 332,000 target cited in the company's listing prospectus.

Its sister firm, China Shipping Development, has just reported a 2004 net profit rise of 80 per cent and a higher capital spending budget this year of 4 billion to 5 billion yuan, compared with 1.8 billion yuan last year, to fund its fleet expansion.

Investors were annoyed, however, that the company cut its dividend payout ratio to about 27 per cent from 49 per cent, and sent China shares skidding by 6.49 per cent after its results.

Li said the group might eventually spin off other parts of its business, which includes ports, logistics and a new shipping container-making joint venture, but he gave no timetable.

- REUTERS