BMI View: The two largest ports in the country (Cabello and La Guaira) are both set to experience a poor 2015, with the ports poised to register contractions in tonnage and container growth. We believe that the recession that began in 2014 will become even more pronounced in 2015, and negative growth will persist into 2016, with the shipping industry caught in the headwinds.
Venezuela's balance of payments position will be significantly undermined by the low price of oil, as crude accounts for the vast majority of the country's exports. With the oil industry accounting for a huge 95% of the Venezuela's export earnings (25% of the country's GDP), the impact of it on the overall economy at large cannot be understated.
We have adjusted our forecasts for Venezuela's current account deficit due to a slight upgrade in our oil price forecasts, but still expect the balance to fall into negative territory in 2015 for the first time in more than 15 years. We are forecasting a shortfall of 4.6% of GDP in 2015, compared to an estimated surplus of 1.6% in 2014, and down markedly from before the financial crisis, when the country's current account surplus regularly reached double digits as a percentage of GDP.
Also affecting our forecasts for Venezuela's shipping sector this year is the fact that the most significant headwind for Venezuelan consumers remains headline inflation, which is among the world's highest. This means that imports continue to suffer, falling by an expected 1% in 2015, as domestic consumers feel the pinch in their pockets, resulting in slowing demand for imported luxury and higher end goods from abroad.
Headline Industry Data
The Port of Puerto Cabello is forecast to see y-o-y tonnage throughput contract in 2015 by 2.50%, while box throughput is set to contract by 9.00%.
The Port of La is forecast to see annual tonnage throughput contract in 2015 by 3.00%, while box throughput is set to decrease by 6.00%.
Key Industry Trends
Government Reaches USD14bn Oil Deal With Rosneft - The Venezuelan government has reached an agreement with Russian state-owned oil company Rosneft to invest USD14bn in the country's oil and gas sector, according to President Nicolas Maduro, it was reported at the end of May 2015. The deal is expected to help the Latin American country double its oil production, Maduro stated on May 27 following a meeting with Rosneft CEO Igor Sechin in Caracas, which will have positive ramifications for the Venezuelan shipping sector going forward.
President And State Department Laud Diplomatic Talks - Venezuela and the US have lauded diplomatic talks held between officials from the two countries in Haiti on June 13, which could have a positive impact on trade and, therefore, boost the Venezuelan shipping sector. The talks, aimed at reducing tensions between the two countries, were termed 'positive and productive' by the US State Department on June 15, while Venezuelan President Nicolas Maduro stated that the two sides had 'opened a very important diplomatic channel', reported the BBC. The development comes amid worsening relations between Venezuela and the US, after the latter imposed sanctions on several top Venezuelan officials on allegations of humans rights abuses.
Private Consumption Picture To Affect Imports - The government's last reported inflation print was 68.5% y-o-y in December 2014, but given the continued growth in the money supply, as well as rapid increases in tax receipts and banking sector assets (despite economic stagnation), we are confident that price growth has risen even further in more recent months (reflected in our average inflation forecast of 78.3% y-o-y in 2015). This will further erode Venezuelan household purchasing power, weighing heavily on real growth in private consumption. We forecast that real private consumption will contract by 7.5% in 2015, which will mean a drop in imports as consumers have less money to spend in shops and, therefore, demand for shipped goods from abroad will drop.
Key Risks To Outlook
There are both upside and downside risks to our macroeconomic forecasts, which has a large knock-on effect on Venezuela's shipping sector. Given the low level of foreign reserves and limited availability of outside finance, the Venezuelan government may elect to devalue the bolivar, or restrict imports by a greater extent than we currently envision, which would render our forecasts overly pessimistic.
In contrast, our Oil & Gas team believes that risks remain to the downside with regards to our crude forecasts. If prices drop by further than we anticipate, this would deepen Venezuela's external account woes, and we would need to downgrade our forecasts.