Indonesia Shipping Report Q3 2012

BMI View: Still A Bright Spot We have trimmed our growth forecasts for Indonesia in 2012 and 2013, but only marginally so. BMI''s view is that the slowdown in the global economy, and in Chinese growth which will for the first time in the last decade come in at under 8%, will have a knock-on effect on Indonesia. On the other hand, the country''s domestic economy is in fairly rude health, with consumer spending looking solid and investment also performing well as the government and the private sector begin to tackle the often postponed need to expand and update infrastructure. BMI now expects the Indonesian economy to grow by 5.8% in 2012 (down from 5.9% in our last quarterly report); our outlook is for GDP growth of 6.2% in 2013 (was 6.3%). In the five years to 2016 we expect growth to average 6.2% per annum, confirming the country as a regional outperformer.
As far as industry specific factors are concerned, we continue to think that the key to sustainable growth is investment in port infrastructure, including road and rail links in the hinterland areas. We are therefore encouraged that after many delays, Indonesia Port Corporation II (IPC) has announced that it will invest US$2.47bn to develop an extension of the Tanjung Priok port in North Jakarta, the country''s largest port. Of this, US$1.38bn will be invested in container terminal infrastructure with the aim of more than tripling annual capacity from 5mn twenty-foot equivalent units (TEUs) to 18mn TEUs upon completion in 2023.
Headline Industry Data 􀂃 2012 Tanjung Priok total tonnage forecast to grow 5.6% to 49.736mn tonnes, with average growth of 5.7% expected over our forecast period to 2016.
􀂃 2012 Palembang total tonnage forecast to grow 3.6% to 10.595mn tonnes, with average growth of 4.1% over our forecast period.
􀂃 2012 Tanjung Priok container throughput forecast to grow 4.3% to 6.046mn TEUs, with average growth of 9.3% over our forecast period.
􀂃 2012 Palembang container throughput forecast to grow 5.7% to 91,736TEUs, with average growth of 6.2% over our forecast period.
Key Industry Trends At Last! Investment Commitment For ''New Priok'' After years of delays Indonesia''s main port is finally in line for investment to update its facilities and expand its capacity, allowing it to keep up with, and con tribute to, the country''s economic growth. Indonesia Port Corporation II announced that it will invest US$2.47bn to develop an extension of the Tanjung Priok port in North Jakarta. US$1.38bn will be invested in container terminal infrastructure with the aim of more than tripling annual capacity from 5mn TEUs to 18mn TEUs upon completion in 2023. A further US$730mn will be spent on construction of a new petroleum product terminal and US$305mn on toll roads, a power station and an industrial area. The project is being carried out under the Master Plan for the Acceleration and Expansion of Indonesian Economic Growth (MP3EI), a 10-year initiative intended to realise high, sustainable economic growth over the next decade.
Trouble Ahead? Government Bans Unprocessed Mineral Ore Exports The government''s attempt to get mining companies to do more refining and processing inside Indonesia could create problems for shipping companies. Regulation Number 7 banned unprocessed exports effective from early May, with exceptions allowed only when certain criteria are met. The new situation means that shipping companies with long-term charters to haul mineral ores could find themselves in difficulty, either with mining companies seeking to declare force majeure or in the worst case with the government seeking to detain vessels suspected of carrying banned cargo.
Maersk Line Bullish About Indonesia Danish shipping group Maersk Line was looking to expand in Indonesia, Vietnam and Myanamar (Burma), three shipping markets which would outperform world growth trends, said top executives in the company. Regional head Thomas Riber Knudsen said that Southeast Asia was characterised by strong growth and greater business optimism than in Europe; the region had a population of over 500mn people, and generally good infrastructure. Maersk had high expectations for MCC Transport, its intra-Asian freight carrier. The market in South East Asia is characterised by strong competition, with 30-40 niche players from Bangladesh to eastern Russia, so MCC is trying to offer higher reliability, lower costs and better quality to its customers.
Key Risks To Outlook The main downside risk is a sharper-than-anticipated slowdown in global growth, with Indonesia particularly influenced by the Chinese economy, which is having a slower year than usual. If the global economy fares worse than expected, the Indonesian ports and shipping sector will feel the pinch through reduced trade levels. However, it has to be stressed that this is a smaller risk than in many other countries; based on a strong domestic economy, Indonesia was able to remain on a growth path throughout the 2009 recession. If anything, we see the economy remaining resilient in 2012.
A second downside risk to our outlook is the possibility that some of the current projects to expand port capacity might suffer a high-profile setback, such as a legal dispute or allegations of corruption. Any such development might damage the gradual improvement in investor perceptions of Indonesia that has taken place over the last few years. More specifically, it would lead to delays in the much-needed drive for modernisation.