Thailand Shipping Report Q2 2012

BMI View: Floods And World Economy Weigh on Forecasts Our outlook for the Thai economy - and the shipping and ports sector - remains for only moderate growth this year, against the background of a subdued recovery following the disruption caused by the floods of late 2011, some persisting political risk factors, and a generally troubled world economy. We are holding our main forecasts in place, although we believe downside risks have increased. The damage and disruption caused by the flooding was greater than expected, and GDP fell by 9% year-on-year (y-o-y) in Q411. However, we still hold to our prediction that the Thai economy will grow by 4% in GDP terms this year. We have trimmed our forecast for foreign trade, and now expect it to grow by 5.25% in real terms.
The lower rate reflects the impact on Thailand of lower growth in mainland China, and of an overall contraction in the eurozone economy. As for industry-specific factors, we now expect supply chain problems to last longer than had at first had been imagined, disrupting automobile and electronic component industry exports for much of the first half of this year. This highlights downside risks to exports and associated demand for shipping. On the plus side, there will be some additional spending on reconstruction and recovery.
Headline Industry Data
.. Gross tonnage at Laem Chabang, the country's largest port, set to rise by 6.8% to 57.23mn tonnes in 2012 (faster than the forecast 4.0% GDP growth for this year).
.. Box handling at the same port to rise 6.7% to 6.116mn twenty-foot equivalent units (TEUs).
.. At the Port of Bangkok BMI projects tonnage growth will reach 5.8% in 2012 (up from 2.4% in 2011) to 17.81mn tonnes, with container handling set to grow 5.4% to 1.376mn TEUs.
.. We have trimmed our trade forecast. We now expect the real value of foreign trade to grow 5.25% in 2012, with imports up by 5.5% and exports marginally behind at 5.0%.
Key Industry Trends
PTT Ponders Strait Of Hormuz Risk
PTT, Thailand's state-owned oil company, has reacted to the latest spike in US-Iran tensions by considering diversifying its crude oil import sources. An executive noted that around 70% of Thailand's crude oil imports pass through the Strait of Hormuz, which could potentially be closed in a Washington- Tehran stand-off. PTT said it had purchased 2mn barrels of Castilla crude from Colombia, due to be shipped aboard a very large crude carrier (VLCC) during March. BMI notes that to the extent that PTT succeeds in diversifying its crude oil imports, there will be a corresponding shift in tanker freight demand.
Shippers Rowing Against The Current On Box Rates?
Container freight rates to and from the main Thai ports could go up in April 2012, as a number of shippers seek to improve their returns. At the beginning of March, Hong-Kong based shipping line OOCL (Orient Overseas Container Line) said it would raise rates on cargo moving to Australia from South East Asia by US$200 per twenty-foot equivalent container. Separately, Swiss container line MSC (Mediterranean Shipping Company) said it would be raising rates by US$400 per twenty-foot equivalent container on Asia-Europe routes. The hikes came amid continuing concern that excess capacity and competition have driven box rates down to uneconomic levels.
Hard Times At RCL
Thailand-based shipping company Regional Container Lines (RCL) registered a net loss of THB780mn (US$25.8mn) in 2011, compared with a net profit of THB465mn (US$15.3mn) a year earlier. The loss was attributed to persistent overcapacity, which has capped freight rates, as well as an increase in bunker expenses. The company reported revenue of THB15.24bn (US$504.09mn) in the same period, compared with THB16.27bn (US$538.16mn) in 2010.
Key Risks To Outlook
We still believe the main downside risk to our Thailand ports and shipping forecast comes from the uncertain global economy. Thailand is particularly exposed to the possibility of a sharper-than-expected slowdown in China, an increasingly important trade partner. As a net oil importer, the country is also at risk of any increase in Middle East tensions that will cause a spike in oil prices. We believe that the threat of an external blow to Thailand's economy could still tip the country into a recession.
A second and persistent risk is domestic and political - the danger that the country could slip back into its recurring and sometimes violent conflict between rival 'red shirt' and 'yellow shirt' factions. The ruling Puea Thai Party (PTP) led by Prime Minister Yingluck Shinawatra and supported by the 'red shirts' is insisting on constitutional reform. Although the content, timing, and methodology of the reform is still not clear, the opposition People's Alliance for Democracy (PAD), aligned with the 'yellow shirts', remains radically opposed to any changes that might allow Yingluck's exiled brother, Thaksin Shinawatra, to return to the political arena. Although for the moment this contentious issue is being dealt with on a 'wait and see' basis, BMI detects an increasing risk that the PTP's adamant stance on amending the constitution will eventually invite a retaliation from the PAD. The threat of further political turmoil in Thailand and policy discontinuities could severely undermine investor confidence in the Thai economy.