May 31, 2011 / 4:44 PM / in 7 years

China power tariff hike to benefit coal shippers

BANGALORE, May 31 (Reuters) - Global shipping companies transporting power-generating coal will likely ride an increase in import from largest consumer China, following the country’s decision to hike electricity tariffs for the first time in nearly two years.

China said on Monday it would raise tariffs for some users by about 3 percent, as it tackles its worst power shortage in seven years -- partly the result of little incentive to produce electricity. [ID:nSGE74U001]

“If the higher electricity prices and improved margins for utilities lead to incremental thermal coal imports that would likely be positive for the dry bulk market,” analyst Frode Mørkedal at Oslo-based investment bank RS Platou Markets said.

Morningstar Inc analyst Adam Fleck said companies such as Genco Shipping and Excel Maritime would particularly benefit because of their higher spot-market exposure as well as bigger fleet of Capesize vessels, which ship coal and iron ore.

Shippers like Diana Shipping , Eagle Bulk Shipping and Navios Maritime Holding are also likely to gain.

“Demand picture for the next quarter or two is definitely positive,” Fleck said.

He reckons that Wall Street analysts could raise their estimates on the companies because of a slightly healthier demand environment for a sector saddled with oversupply of vessels.

Availability of power in China could also boost the production of steel in the country, which in turn could spur the import of iron ore -- the biggest dry bulk commodities transported by ship owners.

The Baltic Exchange’s main sea freight index , which tracks rates to ship dry commodities, has more than halved in the past six months. The index was up 0.41 percent on Tuesday.

Genco shares were up 6 percent at $7.78 in afternoon trade, while those of Excel Maritime also rose 6 percent on the New York Stock Exchange. Stocks of other dry bulk shipping companies also edged higher. (Reporting by Krishna N Das in Bangalore; Additional reporting by Vaishnavi Bala; Editing by Sriraj Kalluvila)

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