Fitch: China’s Slowing Growth Adds to Shipping Sector Woes

(The following assertion was launched by the score company) LONDON, September 28 (Fitch) China’s slower development and financial transition will pose vital dangers for the delivery sector, which already faces overcapacity, weak freight charges and stretched financials, Fitch Ratings says.

These pressures will most likely result in bankruptcies amongst smaller unrated shippers and should drive consolidation. The affect, nevertheless, is more likely to fluctuate by phase, with dry bulk and doubtlessly container delivery most in danger whereas tanker delivery is more likely to fare higher.

China is a key participant in world commerce, accounting for two-thirds of worldwide iron ore imports, 20% of world coal imports and 16% of worldwide oil imports. Asia (primarily China) was answerable for 40% of container import volumes in 2014. China’s slowing development will subsequently considerably reduce demand for delivery providers, whereas oversupply is rife in all segments besides tanker delivery. This will put additional strain on freight charges. With iron ore and coal representing nicely over half of the seaborne dry bulk demand, dry bulk delivery is most uncovered to the transition of the Chinese economic system. China’s coal imports plummeted by 15% in 2014 and an extra 32% year-on-year within the first eight months of 2015. Its iron ore imports have been marginally down within the first eight months of this yr.

Despite the elevated scrapping of dry bulk vessels this yr, the phase carried out poorly with the Baltic Dry Index common for the yr up to now at its lowest in 10 years. Several small dry bulk delivery firms have filed for chapter and extra are doubtless. The firms are additionally adapting to harsh sector fundamentals via consolidation as proven by the potential merger of two giant Chinese delivery teams – China Ocean Shipping (Group) Company (COSCO) and China Shipping (Group) Company, that are concerned in varied delivery segments.

Weaker information on exports and manufacturing in China and its financial transition enhance uncertainty for container delivery. We count on world container demand development to average to between 2% and 4% this yr in comparison with our earlier forecast of 4%-5%. The year-to-date common of the China (Export) Containerised Freight Index, which is a measure of freight charges, is down 16% in comparison with the identical interval final yr. The provide/demand imbalance will likely be exacerbated by container delivery firms persevering with to order mega-vessels. Because of their dimension, these vessels are largely restricted to the Europe-Asia buying and selling lane, contributing to the overcapacity.

We count on tanker delivery to be extra resilient to China’s slowdown than different delivery segments attributable to higher supply-demand fundamentals because of a extra disciplined capability development in 2014-2015. Freight charges rebounded, supporting stronger monetary efficiency of tanker delivery firms in 2014 and 1H15. The fall in oil costs has additionally strengthened demand regardless of slowing development, with China’s oil consumption rising 2.6% within the first eight months of this yr.

The above article initially appeared as a publish on the Fitch Wire credit score market commentary web page. The authentic article will be accessed at www.fitchratings.com. All opinions expressed are these of Fitch Ratings.

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