Commodities Boost South African Container Market

container ship

By MarEx 2017-06-13 20:54:03

Ongoing economic uncertainty has continued in South Africa over recent months. While this has made for a turbulent start to 2017 within many sectors, the country’s container market has shown solid growth across both imports and exports during the first quarter, resulting in strong year-on-year growth of 10 percent.

For Maersk Line Southern Africa, the majority of growth witnessed in the first quarter of 2017 is a result of strong mining commodity export growth. “After a 2016 downturn in the mining and mineral resources sector, commodity prices have recovered significantly through April, resulting in South African container exports showing year-on-year growth of 20 percent,” says Jonathan Horn, Managing Director of Maersk Line Southern Africa.

He says that Asia exports grew by 37 percent year-on-year over the first quarter, on the back of growing demand for local mining commodities. Asia is South Africa’s largest export corridor, making up around 45 percent of total exports.

“Commodities such as chrome and manganese are used in various products, from household appliances to road and building construction, so the global consumer demand as well as infrastructure spend – particularly from China due to plans around building a modern-day version of the ancient Silk Road – have helped boost the demand for South African mining commodities. The growth has also been supported by a move in some instances from bulk to containerized flows,” says Horn.

Demand for mining commodities may have picked up early this year, but commodity volatility is also expected throughout the year. Recently, chrome demand has dropped significantly, while manganese demand has increased. According to Horn, “Commodity demand generally follows short volatile cycles and, as commodity prices have recently decreased significantly – a reflection of lower demand – market growth for the rest of the year, while difficult to predict, is expected to be lower, in the two to four percent range.”

Refrigerated exports recorded growth of about seven percent compared to the first quarter of 2016, which Horn says is a reflection of a robust grape crop and strong demand in Europe for South African grapes. “Looking forward, the citrus crop, which represents more than 50 percent of South Africa’s refrigerated container exports, is expected to grow by five to seven percent on the back of strong crops in the North, while crops from the Eastern Cape will likely decline.”

Looking specifically at imports, which represent 56 percent of total container flows, Horn says that while the market has grown by two percent year on year, it is still slightly lower than the 2013 level which represented significant growth. 

“Import growth in 2016 contracted by around five percent, and the market has essentially rebounded from this poor performance. Import growth in the first quarter has been stronger than expected. This is linked to a more favorable rate of exchange that has made imports more affordable and allowed businesses to restock inventory at an affordable level.”

While this is a positive development, Horn says that only growth over a longer period will signify sustainable rebound on consumer confidence and purchasing. “There is no clear evidence that consumer spending is on a sharp rise, and thus five percent growth is not likely to continue. Rather, a slightly lower one to three percent container import growth can be expected for the rest of year.”

Horn concludes that despite this quarter’s promising overall trade results, he is cautious about being too optimistic, given that significant up and down market swings are common in the South Africa container market in recent years. 

“Despite the strong year-on-year growth of 10 percent, the 2017 market size is only five percent larger than the 2013 market size, which means the long-term growth has only been around one percent per annum in the last five years. Until a significant upward swing is seen in local consumer spending as well as consistent mining commodity demand from China, the market growth is likely to be in the low single digits for the rest of the year.”