Slowing China exports eroding positive outlook
“Highly to modestly positive” is the way some container carriers are describing their 2012 forecasts, but weak trade figures may soon put the kibosh on that kind of optimism.
China is heading for its weakest year of expansion since 1999. The trade surplus widened in August to US$26.7 billion as imports turned an expected 3.5 percent rise into a fall of 2.5 percent year on year.
Exports just missed forecasts, growing 2.7 percent last month instead of the expected three percent.
The official growth target for China this year was revised down to 7.5 percent, but with the weak trade figures and slowing consumption, hitting that figure will not be easy.
Hold on a minute … China’s premier Wen Jiabao told the World Economic Forum in Tianjin this week that the country would meet its economic targets. You know what that means. Whatever happens between now and the end of the year, not one single province will dare to achieve GDP growth of under7.5 percent. Even the remote, barren and uninhabited western ones.
Opaque statistics aside, it is difficult to put a positive spin on the financial results of retailers that are reporting plunging mainland sales. Burberry just issued a profit warning, Prada and LV saw their stock prices fall.
On Wednesday, China’s State Council announced eight measures to stabilise growth of foreign trade, including speeding up export tax rebates, improving loan access, improving customs clearance and expanding the opening up of the central and western provinces. This comes not long after $150 billion was made available for herding white elephants. Or infrastructure projects, as they are better known as.
The problem, of course, is that selfish consumers in the US and Europe just won’t spend enough, and that is making life difficult. China is still an export-oriented economy, and most of those exports are manufactured using imported raw materials.
Falling demand means factories are simply producing fewer goods and there is going to be less cargo floating the world’s oceans this year and probably the next.
Surprisingly, not all container lines are pessimistic. It’s almost as though they know something we don’t. CMA CGM believes it is heading for a profit in 2012 following a “sharp acceleration” in business in the second quarter. The French line made a US$178 million profit on the back of strong freight rates and increasing volume.
It was enough for the carrier to predict a “highly positive” third quarter and confirm that it expected to reach a profit for the full year.
OOCL boss CC Tung never went so far as to predict an annual profit for his carrier, saying margins would be thin until supply and demand was rebalanced, but he was reasonably positive.
“Despite limited ordering of new vessels over the last twelve to eighteen months, the industry needs to absorb an estimated 2.4 million TEU of new-building capacity, which is about 15 percent of the current global capacity, over the next 18 months,” he said last month.
Maersk Line, as we mentioned in an earlier blog, is all happiness and light following its $227 million profit after a good second quarter. The Danish carrier expects a “modestly positive result” in 2012.
The three carriers are expecting freight rates to hold up in the second half but with China’s export figures dropping month after month that may be more wishful thinking than reality.