Just Released: "Chile Shipping Report Q1 2014"

We are revising down our 2014 real GDP growth forecast for Chile to 4.2%, from 4.6% previously, as the country's H113 economic performance has reinforced our conviction that lower commodities prices and weakening external demand for industrial metals will weigh on Chile's economy over a multi-year timeframe. This slowdown in growth is attributable to decelerating economic activity in China, which over the next several years will result in weakening real demand for Chilean copper exports and reduced investment into the country's mining sector. This slowdown in demand will have a negative effect on Chile's port and shipping volumes.

Our Asia Country Risk team believes that the likelihood of a rapid and sustained economic downturn in China is rising, posing downside risks to our growth forecast for Chile. Indeed, if Chinese demand for copper, and thus subsequently copper prices, trend lower than we currently forecast, we could see real GDP growth in Chile head well below 4.0%.

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This should have a negative knock-on effect on volumes at the country's ports. Further downside risk is presented by a series of strikes that took place in the Chilean ports sector in 2012 and in Q113. Additional strike action could hit port throughput.

Headline Industry Data

* 2014 Port of Valparaiso tonnage throughput forecast to grow 1.7%.
* 2014 Port of San Antonio tonnage throughput forecast to grow 4.9%.
* 2014 Port of Valparaiso twenty-foot equivalent unit (TEU) throughput forecast to grow 2.5%.
* 2014 Port of San Antonio TEU throughput forecast to grow 5.4%.

Key Industry Trends

Investment In Port Infrastructure Ahead

Considerable investment in the expansion of Valparaiso Port confirms our positive outlook on Chile's ports infrastructure and the wider construction industry. A new US$723mn investment includes the expansion of Terminal 1 (operated by TPS), the expansion of the South Access junction and construction works in progress in Terminal 2 which was awarded to OHL in April 2013.

Casual Port Workers Threaten Strike Over Debt

Casual workers at Chile's ports have threatened to go on an all-out strike unless a dispute with the tax authorities regarding additional payments is resolved. The tax authorities had removed a discount in September 2010 that exempted such workers from paying extra second category income tax. The move resulted in a historic debt that must be paid now.

Risks To Outlook

The main downside risk to our outlook for the Chilean port sector is the possibility of a hard landing in the Chinese economy. This would result in a steep fall-off in Chinese demand for Chilean dry bulk exports such as copper, significantly hitting port throughput.

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