Overcapacity puts pressure on China ports cargo growth: Moody’s

Feb.13--Chinese ports are forecast to face pressure in cargo throughput growth in the next two years due mainly to the country’s economic rebalancing and ongoing capacity additions, according to a recent report by Moody’s Investors Services.
The credit ratings agency also expected the standalone credit quality of Chinese port operators to widen as a result of a port’s location becoming a more important credit factor in differentiating among the ports.
“The ongoing downturn in the iron ore and coal sectors, combined with intense competition from neighbouring ports, is threatening a number of ports in north and northeast China that mainly handle commodity bulk cargo,” said Michelle Zhang, vice president and senior analyst at Moody’s.
“Along with rising labour costs, these factors will pressure the profitability of Chinese port operators in the next two years,” Zhang added.
The report believed that operating efficiency and the ability to provide comprehensive and high quality services along the supply chain will become more important to Chinese ports’ standalone credit quality.
Chinese ports’ cargo throughput growth will progressively shift from commodities to containerised and high-value goods as its growth model shifts the contribution of low-value-added manufacturing to domestic consumption and higher-value-added industries.
The core ports in the three prosperous economic regions – Pearl River Delta, Yangtze River Delta and Bohai Rim – are well equipped to benefit from this shift, according to Moody’s.
Meanwhile, overcapacity will dampen the need for capacity additions, but the growth in ship size and the structural change in the cargo mix handled by Chinese ports will drive port operators to improve their infrastructure in order to remain competitive.
This will lead to relatively high capex on port operators, making deleveraging unlikely over the next two years,N the report said.