There is not much to separate Australia's three main ports by way of tonnage throughput, with the Port of Brisbane set to lead the way in 2012. This scenario is set to change by the end of 2014, when Melbourne is expected to take top spot. Box throughput sees the Port of Melbourne retaining its position in first place, ahead of the domestic competition, which is led by second-placed Sydney. In terms of annual growth, it is the Port of Sydney that is set to record the highest rate with a forecast 4.8% increase this year.
It cannot be underestimated how big a factor the expected slowing in Chinese demand is going to be on key export partners such as Australia. Australian ports will therefore suffer from a projected slowdown in throughput on the back of reduced Chinese demand. Exports of raw materials will be hit as China demands less iron ore and coal, for instance. Even though we believe that the extent of the Chinese hard landing holds the key as to whether or not Australia can avoid a recession in 2012, we have long held that a period of weakness in the Australian economy is highly likely, regardless of the outlook for Chinese demand.
Headline Industry Data
- 2012 Port of Melbourne tonnage throughput forecast to grow 3.26%.
- 2012 Port of Melbourne container throughput forecast to rise 2.39%.
- 2012 Port of Sydney tonnage throughput forecast to increase 4.80%.
- 2012 Port of Sydney container throughput forecast to increase 3.04%.
- 2012 total trade growth forecast to contract by 4.38%.
Key Industry Trends
Oakajee Project: Questions On Viability May Deter China Mitsubishi Corporation has begun its search for a strategic partner for the Oakajee port and rail project and the Jack Hills iron ore project in Western Australia, it was reported at the end of February 2012. The Japanese conglomerate scheduled Beijing as the first stop for its roadshow in late-February. BMI maintains that there is a still a lot of potential for both projects to face further delays and as such, Chinese investors may be hesitant to take part in the Oakajee and Jack Hills project given their potential lack of economic viability.
China And Australia Iron Ore Port JV Going Ahead Despite Declining Demand In March 2012, a joint venture (JV) to build an iron ore port in southern Australia received the go ahead with the backing of a Chinese steel maker and Australian iron ore explorer. The new port is to be developed at Port Spencer by Australia's Centrex Metals and China's Wuhan Iron and Steel Company (WISCO). It will accommodate the magnetite iron ore mines and production facility being developed by the two companies in the region and is expected to start exporting in 2015.
Australian Ports Warned Over Urban Encroachment Ken Fitzpatrick, managing director of Australian shipping company Asiaworld Shipping Services, warned in February 2012 that urban encroachment upon Australian ports could result in a reduction in trade. He explained that land located close to seven leading ports was too expensive to allow them to expand and suggested that state governments should instead sell the land for development and use the proceeds to build alternative facilities.
Risks To Outlook
Downside risks are various and are dominated by the situation in China. Aside from that, however, industrial action at certain Australian ports is still occurring, evidenced by the recent strikes affecting Asciano's Patrick Stevedores operations. An ongoing dispute between the Maritime Union of Australia (MUA) and Asciano centres on wages and conditions. It has run for around 18 months, costing the company more than AUD15mn. The ports of Adelaide and Fremantle have also seen industrial disputes over the past few months.
Another issue adding to downside risk in Australia is rising congestion. According to the UK's Port Strategy journal, this is the main driver of inefficiencies in the country - more so than industrial action.
Hanging in the balance is the Oakajee port and rail project, with uncertainty centring on Chinese investors and their potential misgivings over its economic viability. Mitsubishi's search for a strategic partner is seemingly focused on China, given that a number of major Chinese firms own iron ore mines that could utilise the Oakajee project. Further, the mines around the Oakajee project produce the iron ore desired by Chinese steel mills. With the estimated cost of the project having ballooned from AUD4.4bn to AUD5.9bn, there are concerns that this figure may grow further, reaching as high as AUD7bn.
On the upside, the Port of Newcastle announced at the end of 2011 plans to diversify away from coal to agribusiness, with the construction of a new agricultural export terminal