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Investors’ concerns over China port disruptions

By Tafara Mtutu

THE Ningbo Zhoushan Port was partially shut down two weeks ago after the port recorded a positive Covid-19 test among one of its employees. Local authorities in China said the Meishan terminal at the Ningbo Zhoushan port has been suspended till  further notice.

The partial shut-down was prompted by China’s zero tolerance to the virus, its “Zero Covid” stance. The “Zero Covid” approach prioritises the mitigation of the pandemic above all else and, according to a global trade expert at the Economic Intelligence Unit, this will likely perpetuate trade disruptions on a global scale in the short to medium term.

China has risen to become the one of the largest trade partners in the world, accounting for 14,8% of global exports and 11,7% of global imports in 2020,according to UN Comtrade data. The country is the world’s largest exporter, accounting for c.US$2,6 trillion of global export value, and second to the US as a global importer with c.US$2,1 trillion worth of imports.

Asia accounts for 51% of global seaborne trade, and China accounts for the bulk of Asian seaborne trade activity. The country also leads on the liner shipping connectivity index (LSCI) with a Q3 2020 score of 160.

The US’ LSCI score, in comparison, was 103 in the same period. The LSCI indicates a country’s position within global liner shipping networks and is calculated from (i) the number of ship calls, (ii) their container carrying capacity, (iii) the number of services and companies, (iv)the size of the largest ship, and (v) the number of other countries connected through direct liner shipping services.

The Ningbo Zhoushan port is one of the largest ports in the region and the world and in the first half of 2021, cargo throughput at port hit 623 million tonnes while container throughput reached 16,1 million twenty-foot equivalent units (TEUs).

The partial shutdown also follows the partial shutdown of the Yantian Port earlier this year because of a Covid-19 outbreak among port staff as well. The port has since resumed operations but only up to 45% of normal levels.

The pandemic-induced constraints in trade and general economic activity within China are likely to ripple into the country’s trade partners. The stringent measures against Covid-19 in China have resulted in additional burden among the ports that remain fully functional. Further, the slowdown in port activity alone has already begun raising global supply chain fears as well as increasing container shipping costs.

China is among Zimbabwe’s top trade partners. The country accounted for 8,4% of Zimbabwe’s imports and 3,9% of exports in 2019. Indirectly, Zimbabwe’s major trade partner, South Africa, attributes the bulk of its trade with China. South Africa’s exports to China account for 15,4% of total exports and 18,2% of South Africa’s exports originate from China. The impact of trade disruptions in China could therefore ripple to Zimbabwe and the sub-Sahara African region at large, albeit marginally.

Among the major export goods destined to China from Zimbabwe, nickel ore and tobacco rank high on the list. According to OEC and TIMB statistics, China accounts for c.37% of Zimbabwe’s nickel exports and c.33% of tobacco exports.

The seaborne trade disruptions at China’s ports subsequently pose mixed implications to Zimbabwe Stock Exchange-listed companies that are exposed to China, such as Bindura Nickel Corporation, TSL, Nampak, and Unifreight.

Bindura Nickel Corporation is a nickel ore mining company that operates the Trojan Mine in Bindura and Shangani Mine in Matabeleland South. In a trading update for the three months to June 30, 2021, the company alluded to a 24% growth in nickel concentrate production and an 8% increase in nickel ore sales compared to previous quarter.

Demand for nickel ore remains strong as the global nickel market expects a deficit in 2021. The LME nickel price has also firmed from US$17,344/tonne at the beginning of the year to US$19,505/tonne in August 2021 in response to the strong demand.

The disruption on China adds more to the global supply disruption fears and is expected to sustain the global nickel price at current levels until China allays any further pandemic-related disruptions.

The slowdown in China’s economic and port activity could also ripple into the tobacco sector of Zimbabwe by slowing down the movement of tobacco products such as lamina and cutrag.

This will likely slow down the turnover of tobacco packaging supplier Nampak as well as tobacco logistics companies Unifreight and TSL’s logistics arm.

We also note that the decline in port activity in China could extend to Victoria Falls Stock Exchange-listed Padenga Holdings. Padengais a crocodile skin manufacturer and gold producing entity that recently set its sights on the Asian crocodile skin market amid constrained crocodile skin demand in the EU in 2020. The slowdown in economic activity in China on the back of a renewed wave of COVID-19 infections could dent the progress of Padenga’s penetration into the Asian market.

  • Mtutu is a  research analyst at  Morgan & Co. — +263 774 795 854 or tafara@morganzim.com
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