2013-09-24 17:25:37 - New Transportation research report from Business Monitor International is now available from Fast Market Research
Heading into the tail end of 2013, in terms of relative performance, South Korea stands out as particularly vulnerable from a regional perspective, in our view. Aside from the obvious China susceptibility, the country faces myriad domestic problems, particularly in terms of over-indebtedness. Corporate balance sheets are in a poor state, and the Korean consumer is the most highly leveraged in Asia. As the export machine continues to stall, the prospects of a spike in bad debt and a seize-up in domestic demand cannot be ignored. Our bearish real GDP growth forecast of 2.6% in 2013, therefore, faces substantial downside risks. That said, South Korea's GDP expanded 1.1% quarter-on-year (q-o-q) in April-June, the strongest growth in more than two years.
The growth was registered owing to stronger government spending and private consumption amid a sluggish property market and slower growth in China. Government spending climbed 2.4% q-o-q in Q2 2013, compared with a 1.2% increase in Q1 2013. Private consumption rose 0.6% in the reported period, following a 0.4% fall in Q1 2013. Construction investment increased 3.3% in Q2 2013, while facilities investment dropped 0.7%. Exports of goods and services jumped 1.5% in Q2 2013, dropping from a 3% rise in the previous quarter. The central bank intends to improve domestic demand and resilient exports to meet its economic growth forecast of 2.8% in 2013 and 4% in 2014.
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The recovery in trade is unlikely to hold up for much longer. Weakness in regional trade activity has been particularly evident in other bellwethers such as Taiwan, Hong Kong and Singapore (see 'PMI Slippage, Just The Beginning', July 2), suggesting that South Korea is likely to follow suit imminently. Moreover, our core conviction of a China slowdown is well underway and appears to be progressively intensifying, which would consequently place further weight on demand for Korean exports.
In slightly worrisome news, the amount of cargo processed at South Korean seaports was reported to have fallen by 2.7% in y-o-y terms in April, the government announced at the end of May 2013. Cargo decreased from April 2012's 91.85mn tons to this year's 90.4mn tons. The Port of Busan, however, saw 5.8mn TEUs processed, cementing its place as the fifth largest seaport in the world, the South Korean Ministry of Trade, Industry and Energy said.
Headline Industry Data
* 2013 tonnage throughput at the Port of Busan forecast to increase by 6.80%.
* 2013 tonnage throughput at the Port of Incheon forecast to grow by 1.1%.
* Container throughput at the Port of Busan is set to rise by 5.00% in 2013, while the Port of Incheon is predicted to see a 8.50% increase.
* The total value of South Korea's trade (imports plus exports) is set to enjoy real growth of 3.05% in 2013.
Key Industry Trends
Incheon Outlook Revised: Our 2013 total tonnage forecast for the port of Incheon has been revised down. BMI is now forecasting growth of 1.1% per year, to 145.6mn tonnes. The downward revision is due to data released for 2012 and the first quarter of 2013, both of which recorded y-o-y declines. In 2012, total tonnage volumes fell by 2.5% annually to 143.9mn tonnes, while in Q1 2013, total tonnage volumes are reported to have fallen by 0.7% y-o-y. Despite this downward revision, we are holding with the view that total tonnage volumes will grow, even if by a relatively small amount, in 2013.
Online Tracking System To Be Introduced: South Korea, China and Japan are set to link up and launch a new online cargo tracking system in the first quarter of next year as the Asian countries looks to streamline services. Beginning in March 2014, the system will enable the three countries to combine their respective systems to cover exporters and importers at major ports, according to Nikkei Report.
Teekay Commissions New LNG Carriers: Bermuda-based LNG shipping service provider Teekay has placed orders for two new LNG carriers, according to the Maritime Information Centre at the end of July 2013. The ships are to be constructed by the South Korean shipping services provider Daewoo Shipbuilding and Marine Engineering. Both ships will measure 173,400 cubic meters, and are scheduled to be delivered sometime in 2016. Daewoo will fit both ships with M-type electronically controlled, gas injection twin engines.
Key Risks To Outlook
In order to keep pace with South Korea's economic growth and for plans to use Incheon as an overflow port for Busan, the facility needs to be expanded to reach its potential. Development plans to create Incheon New Port were announced by Incheon Port Authority's president, Kim Choon-Sun, back in May 2012. Phase 1 of the project, which is currently under way, is scheduled for completion in 2014. At this time the development will boast six berths, with a quay of 1.6km, enabling it to handle ships of up to 10,000TEUs. By 2030, there will be 25 container berths and four general cargo berths.
Politically speaking, risks have subsided to a degree with the news that the governments of North and South Korea have agreed in principle to restart operations at a joint industrial zone, which was earlier shut down on a temporary basis as a result of high cross-border tension. Officials from both countries have agreed to 'revive operations of the firms' at the Kaesong complex 'when ready', AFP reported.
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