Shipping Corporation of India's profit forecast is a tanker forecast

India's shipping minister, Sarbananda Sonowal, said on 2 October that the state-owned Shipping Corporation of India (SCI) will end this fiscal year with a profit after tax above ₹2,000 crore. A crore is ten million, so that is 20 billion rupees. Last year the company made ₹1,326 crore. His case was one line: the first quarter alone had passed ₹600 crore.

That quarter, April to June, made ₹664 crore after tax. The segment table in SCI's results shows where it came from. Tankers produced ₹525 crore of the ₹667 crore segment profit, which is almost four-fifths.

The whole quarter fell inside the Hormuz crisis. Iran closed the strait on 2 March, and tanker earnings have been repriced since. On 18 September the Baltic Exchange's average for very large crude carriers (VLCCs) stood at $722,946 a day. A year earlier it was $79,700.

So the forecast is a statement about tanker rates, and as one it is reasonable. SCI needs another ₹1,336 crore over the three quarters to March. That is about ₹445 crore each, a third less than the first quarter delivered. It is still more than any quarter last year, when the best was ₹414 crore.

The market has also strengthened since June. In the July to September quarter, VLCC earnings from the Gulf to China passed $1 million a day.

But an index is what the market pays a ship that is free, in position and willing to load. How much of it does SCI's fleet keep? The company had 31 tankers in May. On that month's results call its chairman put nearly 60% of them on voyage charter and nearly 40% on time charter. A time-chartered ship earns its agreed hire whatever the spot market does.

So the record rates reach only the voyage-chartered part of the fleet, and only the ships that are free to load. In May, three SCI crude carriers and one LNG carrier were still inside the strait. A ship held inside the Gulf cannot be fixed at the rates its absence helps create.

The forecast therefore holds if the voyage-chartered tankers stay employed near present levels through March, and no more ships are held inside the Gulf.

The first check comes with SCI's half-year results, due in November. Set the tanker segment result against the first quarter's ₹525 crore. That comparison will show how much of the September market the fleet captured.