STX Pan Ocean is Dragging Down the South Korean Conglomerate

STX Pan Ocean’s Ocean Vanguard, image: STX

SEOUL–STX Pan Ocean Co. (028670.SE), South Korea’s largest bulk carrier by sales, said Tuesday it swung to a net loss in the second quarter as oversupply of bulk ships drove down freight rates.

High prices of bunker-C oil also pushed up operating costs while demand remained sluggish, company spokeswoman Jin Ho-jeong said by telephone.

Analysts expect the supply glut of bulk carriers to ease gradually from 2013 as ageing vessels are scrapped at a rapid pace this year. But they said the company’s stock price will remain vulnerable to financial risks at parent company STX Group, which is struggling amid a global economic slowdown that has squeezed profits at its various business segments.

In a move to secure liquidity to ride out current economic uncertainties, STX Group, a shipping-to-shipbuilding conglomerate, said it plans to raise 2.5 trillion Korean won (US$2.2 billion) by selling assets including its entire 50.75% stake in STX OSV Holdings (MS7.SG).

Shares in STX Pan Ocean have fallen 30% this year, underperforming the Kospi’s 7.2% gain, as investors remain concerned about the company’s growth prospects. Analysts, however, said that shares are unlikely to rebound in the near term as the shipping industry remains in the doldrums on weak demand.

For the three months ended June 30, STX Pan Ocean posted a net loss of $83.84 million, shifting from a net profit of $20.39 million a year earlier, the company said in a statement.

The Baltic Dry Index, a closely watched index of bulk-shipping rates, plunged 26% to 1,024 points in the second quarter from 1,379 a year earlier, the company said.

“A BDI of at least 1,300-1,500 is needed for the company to reach break-even point,” said Shin Min-seok, an analyst at Shinhan Investment Corp.

The company also swung to an operating loss of $91.83 million from an operating profit of $47.19 million, while sales fell 10% to $1.255 billion from $1.399 billion.