A strong performance of its product tanker fleet and increased valuation of dry bulk hedging instruments helped DS Norden, the listed Danish shipping group, to report a strong start to the year.
Group net profit amounted to USD38.6 million in 1Q15 compared with a loss of USD26.5 million a year earlier. Revenues decreased to USD455.9 million from USD557.7 million.
In dry bulk, very low freight rates and the still negative outlook have resulted in a sharp increase in scrapping. During the first quarter, scrapping amounted to a total of 9.1 million dwt, which corresponds to an annualised scrap rate just below 5% of the world fleet.
This makes net fleet growth likely to be around 2% to 3% in 2015, which is lower than the previously expected 4% to 5%. “At the same time, the order book has declined to the lowest level since the fourth quarter of 2013 due to cancellations, conversions and lack of new orders,” the company said in a statement.
Its dry bulk division, which employed 223 ships in the latest quarter, made a net profit of USD13.6 million compared with a loss of USD13.6 million in 1Q14. A USD9.9 million increase in the valuation of hedging instruments and low capital cost base helped the company in the weak market.
“Despite a more positive development in fleet supply, Norden maintains the view that this will be insufficient to create a sustainable improvement in the market in 2015,” it said.
In product tankers, of which the company has 28, fleet growth has been as anticipated during the first quarter, which, traditionally, shows higher delivery rates for newbuildings.
“Growth has been largest within the MR and the LR2 vessel types. Due to attractive rates, there has been slightly less scrapping than usual, but despite the lower level of scrapping, a net fleet growth rate of about 5% to 6% for the year is still expected. New ordering has been limited within MR, whereas LR1 and LR2 have seen some order activity,” Norden said.
The product tanker business made a net profit of USD28.1 million in 1Q15, markedly higher than the USD3.4 million profit in 1Q14.
On 31 March, Norden had covered 19% of the ship days in tankers for the rest of 2015. “It has been a goal to increase coverage for 2015 during the first quarter, but the 1-year T/C rate did not follow the upward trend of the spot rates. The company has estimated the higher earnings available in the spot market at the turn of the year to be more attractive than long-term employment at considerably lower rates,” it said.