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COSCO expects US$1.4bn loss

Chinese shipping giant COSCO Shipping Holdings expects to report an RMB9.9bn (US$1.44bn) net loss in 2016 amid slow growth in global container shipping demand and oversupply of shipping capacity.

According to a profit warning to the Hong Kong Stock Exchange, due to weak market conditions, the group’s container shipping segment’s growth was lower than the growth of the container shipping volume, and the rise in revenue was lower than the increase in costs.

The estimated net loss compares to an RMB283m (US$41m) net profit for the year ended December 31, 2015.

According to the company, a non-recurring loss was incurred in 2016 due to the disposal of assets, including a total net loss of RMB1bn (US$145m) due to the decommissioning, demolition and disposal of vessels.

The profit warning came two days after the company’s announcement that a total of eight container vessels were disassembled by the group during the fourth quarter of 2016, with the total net losses incurred from their disassembly amounting to RMB638m (US$93m).

The vessels, which had an aggregate capacity of 409,914 deadweight tons, were disposed of as scrapped vessels to several purchasers, all independent third parties of the company, at an RMB212m (US$31m) net consideration.

According to the group’s preliminary estimation, without taking into account the net loss incurred by demolition of the ships, the company expects to record a profit before interests and tax (EBIT) of about RMB700m (US$102m) in the fourth quarter of 2016.

“During the reporting period, the group had gradually achieved synergies generated from its business restructuring, and the performance of the group significantly improved on a quarterly basis during the reporting period as compared to previous quarters,” a company statement read.

The company statement also noted that “the international shipping market still lacked solid improvement in addressing the imbalance in supply and demand”, with the Baltic Dry Index (BDI), the Shanghai Containerised Freight Index (SCFI) and the China Containerised Freight Index (CCFI) falling to historical lows last year.