China Shipping Report Q1 2012

Includes 3 FREE quarterly updates

BMI View

Following positive throughput figures across China's port sector for the first half of 2011, we forecast another year of growth for Chinese ports, with the Port of Shanghai set to retain its title as the world's largest container terminal for at least another year. We caution, however that there are downside risks to our outlook. We are concerned about the sluggish consumer demand in the US - China's biggest export market - and the eurozone in recent months.

Furthermore, although the immediate outlook for China's Shipping sector looks healthy, we caution that a noticeable slowdown in growth is set to come into effect during our forecast period. Our core view on Chinese growth is that we are past the boom phase and we are entering a period of much weaker expansion, with headline real GDP growth set to fall to 7.5% by 2013. Ports and shipping lines alike are feeling the effects of a gradual contraction in China's overseas trade volumes over our mid-term forecast period. Although this moderation in growth is expected to be soft, concerns over the possibility of a sharper contraction in Chinese bilateral trade adds a degree of downside risk to our projections.

Headline Industry Data

• 2012 port of Shanghai tonnage throughput forecast to grow 5.36%; over the mid-term we project average annual growth of 5.78%.
• 2012 port of Shenzen container throughput forecast to grow 2.8%; over our forecast period we project average annual growth of 2.2%.
• 2012 trade growth forecast at 5.83%, a considerable slowdown from 2011's estimated 9.27%.

Key Industry Trends

Ningbo- Zhoushan's Client Drive Nets Stellar H1 Box Growth

Despite container throughput at China's box port bellwether, the port of Shanghai, falling year-on-year (yo- y) in H111, four ports in China's top 10 have reported stellar growth, enabling the country's main container ports to post an overall growth in throughput. Among these is the port of Ningbo-Zhoushan. BMI highlights the port's potential in the developing mega-vessel shipping market.

South Korean Shipbuilders Come Out On Top As Japan And China Report New Order Declines Shipbuilders are seeing orders for new vessels drop as shipping lines keep an eye on spending in a climate of global economic uncertainty. BMI believes the slowdown in orders is good news for shipping in the longer term, as the sector has recently been blighted by overcapacity. The China Association of the National Shipbuilding Industry said new orders fell 29.2% year-on-year (y-o-y) to 23.58mn deadweight tonnes (DWTs) in the January-July period. Total orders won by Chinese shipbuilders dropped more than 6.4% in the same period, to 176.08mn DWTs. The drop off in orders reflects a global demand reduction, particularly for dry bulk ships and tankers (areas in which China specialises) as these sectors struggle with depressed rates due to a sustained supply/demand imbalance.

Continued Shipping Growth Spurs Port Development On Yangtze Developments of varying degrees at both ends of the Yangtze River highlight BMI's long held view of the river's vital role in China's freight transport mix. Shipping volumes are set to continue increasing on the waterway, as ports expand to take larger volumes of cargo and handle larger vessel tonnage. A major project in the upper region of the river to develop the Yangluo Port area is scheduled for the next five years. It is the only natural deepwater port in the mid Yangtze region and is capable of handling ships of 5,000 tonnes. Following the completion of this second phase of development, the facility will become the largest container port for the middle and upper regions of the Yangtze.

Key Risks To Outlook

The risks presented to our China shipping forecasts are primarily to the downside, with a sharper-thanexpected fall in the country's already declining international trade volumes the most immediate threat. In particular, we believe monetary tightening could cause the country's need for materials such as iron ore to ease, leading to a decrease in the import of such commodities. Meanwhile the risk of a double-dip recession in the US would hit demand from China's biggest export market.