Sea transport hit by weak external demand and surging operating costs

The mainland's port industry will continue to face dim business prospects in the second half of 2012 as it grapples with weak external demand and soaring operating costs, both industry leaders and financial analysts cautioned.

Various Hong Kong-listed shipping and port companies have posted huge drop in their profits in the first half of 2012. China Merchants Holdings' net profit tumbled 55 percent while COSCO's declined 25 percent. Other ports such as Xiamen Port and Dalian port reported a 16 percent and 11 percent decline in their net profits, respectively, over the same period.

"Global economic situation will remain complicated and challenging, and economic difficulties may continue to exist for a while," said Hui Kai, Dalian Port chairman at a press conference held in Hong Kong on Monday. "The mainland's economy will record a slow but stable growth trend, but there will still be uncertainties as to when the mainland economy will recover."

Hui, who was not so optimistic about the company's business in the second half of 2012, said, "The Baltic Dry Index and coal prices in Bohai rim area will continue to fall, and there will be huge overstock of coal. Ore inventories in coastal ports will be hard to absorb."

Looking ahead, the Dalian Port will leverage resources to establish one-stop comprehensive logistics system to consolidate its business in the container, automobile terminal and general cargo segments. The company previously has acquired the Spot Commodity Exchange of Northeastern Asia with the trading companies developing an integrated trading platform to boost more businesses.

Dalian Port will invest another 400 million yuan ($63.09 million) in developing oil transport and container segment businesses in the second half of 2012, making a total capital expenditure of 1.2 billion yuan for the whole of 2012.

The Monday-released HSBC China Manufacturing Purchasing Managers' Index represented the lowest reading since March 2009. The figure is falling for the tenth successive month-on-month that reflects deteriorating operating conditions in the mainland manufacturing sector. The index showed that the Chinese manufacturing activities shrank due to a drop in export orders, the lowest level ever since March 2009.

HSBC Chief Economist Hongbin Qu cautioned that mainland exporters are facing increased difficulties amid stronger global headwinds so the central government must step up policy easing to stabilize growth.

"With weak export demand in the overseas market and rising operating costs, these two unfavorable factors will continue to take its toll on the mainland port industry," Kingston Securities Research Director Dickie Wong told China Daily.

"Those port companies which rely on external transshipment routes will be more negatively affected by the recent economic woes in the US and Europe," First Shanghai Securities Chief Strategist Linus Yip told China Daily. "However, those mainland ports which rely more on national transshipment routes in the country may be less affected as the country's economic growth is still robust can weather some of the negative market impacts."

oswald@chinadailyhk.com

(HK Edition 09/04/2012 page2)