BMI View: Our forecasts for Busan and Incheon, South Korea's two largest ports, reflect our concerns over a strengthening won, a slowdown in Chinese growth and uncertain demand among other key export partners. We have downgraded our forecasts for 2015 relative to 2014. For Busan we expect tonnage throughput to increase by 4.46%, down from 2014's 6.71%, while at Incheon we expect growth of 2.19%, a fall from 2014's 2.72% growth.
South Korea's exports declined in April, as the won's strength began undermining the competitiveness of sales abroad. This has an impact on the country's shipping industry, with shipments overseas falling by 8.1% year-on-year in April 2015, according to the Ministry of Trade, Industry and Energy. Bloomberg quoted Suh Dae Il, a Seoul-based economist for Daewoo Securities Co, as saying: 'Recovery in South Korea's export destinations including Europe remains uncertain, and the won's relative strength is also negative for exports.' A weak Japanese yen and falling Chinese demand will also provide headwinds to exports in 2015.
Headline Industry Data
2015 tonnage throughput at the port of Busan forecast to increase by 4.46%.
2015 tonnage throughput at the port of Incheon forecast to grow by 2.19%.
Container throughput at the port of Busan is set to rise by 5.52% in 2015, while the port of Incheon is predicted to see a 10.00% increase.
Real total trade growth in 2015 is set to be 2.15%.
Key Industry Trends
New Far East-Latin America Service Launched
In March 2015 Hanjin Shipping, Hyundai Merchant Marine and Yang Ming Marine Transportation Corporation announced plans to establish a new service linking the Far East with the west coast of Central and South America from July 11 2015. The WLX (West Latin Express) or SA2 (South America Loop 2) service will be operated with 10 4,500-5,500 twenty-foot equivalent units (TEU) ships on a weekly basis. The port rotation will be Shekou, Kaohsiung, Ningbo, Shanghai, Busan, Manzanillo (Mexico), Buenaventura (Colombia), Callao (Peru), Valparaiso and San Vicente (Chile), Manzanillo (Mexico), Busan, Shekou.
Demand Constraints Limit Export Destinations
International demand for condensate imports will remain robust given its use as a diluent for heavier crudes and as feedstock for petrochemical facilities. Demand will be particularly strong in Japan, South Korea and India, given rising demand for crude from heavy-oriented domestic refiners driven by lower prices at the pump, combined with their current dominance within the condensate market. We believe there will be strong demand for US condensate exports in North East and South Asia, particularly as countries seek to diversify imports away from Middle Eastern producers.
Chinese And Japanese Shipbuilders Look To South Korea For Equipment
Demand is growing for South Korean shipbuilding equipment, with orders flooding in from Chinese and Japanese firms, according to the Korea Trade-Investment Agency (KOTRA). There is an increasing demand at present for liquefied natural gas (LNG) vessels, but Japanese shipbuilders are unable to meet this demand, said Jo Hyo-jae, a professor at Korea Maritime and Ocean University. And although China has been in first place globally in terms of shipbuilding in recent years, its shipbuilding capability for large ships is 'weak', according to KOTRA.
Key Risks To Outlook
There is upside risk to our shipping forecasts in terms of the expansion of a vehicle-only seaport in South Korea, as reported in April 2015. Auto exports will be boosted, enhancing an already key market for South Korea. 'Once the construction is completed, the capacity of the Pyeongtaek-Dangjin Port will be significantly enhanced, also strengthening the port's role as a hub for auto exports,' explained the Ministry of Oceans and Fisheries. A total of 6.35mn cars were exported in 2014.
South Korea faces increasingly challenging domestic and external conditions, with headwinds to growth mounting on both fronts. The slowdown in China continues to act as a drag on external demand growth, while private consumption growth shows little signs of revival. Considering its status as South Korea's largest trade partner (accounting for around a quarter of exports), the continued slowdown in China's economy will continue to weigh on South Korea's export growth. Real GDP growth in China will continue to slow over the coming years, following a forecasted decline to 6.7% in 2015 (down from 7.4% in 2014). Import growth into China has stagnated even as the country's exports have surged, reflecting the fact that China's protracted rebalancing process is unlikely to lead to a surge in import demand any time soon.