Pacific Basin Writes Down Bunker Hedge by $31M, Provides $101M Against Chartered-in Bulkers

The company said its bunker swap write down will not have a cash impact

Dry bulk shipper Pacific Basin Shipping Ltd. (Pacific Basin) Wednesday announced that its 2014 earnings report will feature a $31 million impairment to its bunker hedging programme and a $101 million provision against long-term charter contracts.

"The significant drop in global fuel prices caused a reduction in the carrying value for the bunker swap contracts at the end of December 2014 and an estimated non-cash charge of approximately US$31 million is expected to be recorded in the Group's consolidated income statement for the Year," said Pacific Basin.

The company said it usually agrees the price of long-term contracts based on, among other things, the market price of bunkers at the time of the agreement.

It hedges against fluctuations in bunker prices for future voyages by entering into swaps.

The company said the recent dramatic fall in bunker prices has meant that they are out-of-the-money on certain swaps.

Pacific Basin said that its ultimate profitability should be unchanged as it will make up the shortfall through the procurement of cheaper bunkers.

However, it also announced it would provide $101 million against the value of certain vessels chartered in on long-term contracts.

The company said it had anticipated better market conditions for bulk carriers when it entered into contracts to charter in certain Handysize and Handymax bulkers in 2010, but that it now looked as though the earnings potential of the chartered-in vessels would be lower than their cost.

The company's 2014 results are scheduled for release on February 26.

Pacific Basin reported a large loss at the half-way point in 2014, but has said it is optimistic about the fundamentals of the market.