NIPPON Yusen KK, Japan's largest shipping line by sales, raised its profit forecast to a record after third-quarter earnings almost doubled on higher rates. Shares rose the most in three months.
Nippon Yusen expects full-year net income of 120 billion yen (US$1.12 billion) compared with an earlier forecast of 111 billion yen, it said yesterday. Last year's net income was 65 billion yen. Third-quarter net income almost doubled to 38.1 billion yen in the three months ended December 31, from 19.1 billion yen a year earlier.
Prices for transporting iron ore and other commodities were more than twice as much as a year ago as China's economic growth spurred demand for ships to carry raw materials.
The Tokyo-based company was able to avoid a recent slump in transport rates after locking in prices with multi-year shipping agreements, said Bloomberg News.
"The ratio of long-term contracts is higher than rivals and so it managed to boost profit regardless of the very volatile market,'' said Masayuki Kubota of Daiwa SB Investments Ltd. "The company's shares look cheap.''
Nippon Yusen rose 8.13 percent to close at 825 yen on the Tokyo Stock Exchange.
China's economy expanded 11.2 percent in the quarter ended December 31. The nation's demand for coal and iron ore, used to make steel, pushed shipping rates to a record last year. The country's appetite for commodities is unlikely to decline in coming months, Nippon Yusen said.
Sales surged 24 percent in the quarter to 680.7 billion yen, from 548.6 billion yen a year ago.
"The bulk market was very strong,'' said Makoto Igarashi, a corporate officer at Nippon Yusen. "Demand from China hasn't changed.''
A combination of long-term contracts and a system of booking payments on delivery rather than when contracts are signed helped earnings, Igarashi said.
The Baltic Dry Index, a benchmark for the price of shipping bulk commodities, surged 147 percent to an average of 10,304 in the quarter, compared with 4,166 a year earlier. The index has tumbled in recent months on concern a global economic slowdown will slow growth in China.
"Shipping rates were very high,'' said Yoshihisa Miyamoto, an analyst at Okasan Securities in Tokyo.