Trade tensions put China ports growth at risk

Posted on: 28 May 2019

Prolonged US-China trade tensions will weigh on China’s port operators, according to Moody’s Investors Service.

The ongoing trade war, including the latest round of tariffs, would reduce container throughput growth in China over the next 12 to 18 months, which would be a credit negative for the country’s port operators, Moody’s said.

The ratings agency forecasts container throughput growth this year could range from flat to low single digits, from 4.7% in 2018 and 8.3% in 2017.

In addition, port handling charges will likely continue to decline, reducing operators’ cash flows and further pressuring operators, it added.

“We expect US-China relations to remain contentious and trade negotiations to continue for some time even if the two countries reach a trade agreement, resulting in a difficult operating environment for China’s port sector,” said Moody’s Hong Kong-based assistant vice-president and analyst Ralph Ng.

“Ongoing consolidation within the shipping sector, overcapacity in the port sector and regulations will likely further reduce handling charges, which is credit negative because these charges account for most of the port operators’ cash flows.”

The decline in port handling charges will erode the total revenue and profit margins of China Merchants Port Holdings, Hutchison Port Holdings and Shanghai International Port Group, the three major China-based port operators rated by Moody’s.

Nevertheless, Moody’s expects them to manage these challenges, even as their credit quality weakens.

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