Kenanga Bank keeps “neutral” stance on CBAM affecting seaports and logistics

A Malaysian financial company providing investment management services, Kenanga Investment Bank Bhd, reasserted its “neutral” stand on the carbon emissions tax levied upon the seaports and logistical sectors. The bank claims that the EU’s Carbon Border Adjustment Mechanism (CBAM) can negatively affect the growth of these industrial sectors.

The World Trade Organisation forecasts the global merchandise trade volume will increase by 1 per cent this year, a stark fall from the 3.5 per cent augmentation recorded in 2022.

Kenanga Investment Bank Bhd states: “This does not augur well for seaport operators like Westports Holdings Bhd,” directing a “markets perform” call at a targeted price of RM3.65 on the counter.

The investment bank seems to be positive about the growth of Bintulu Port Holdings Bhd since the organisation has a profound logistical protocol for handling natural gas cargoes. Any price hike at the Bintulu Port might not adversely affect the firm.

“Stricter regulations on carbon emissions may pose new challenges to global trade, particularly one from the United Nations’ International Maritime Organisation (IMO) and another from the European Union (EU),” the research cited.

Under the specifications laid down by the IMO, all ships are requested to register their carbon intensity so that they can be rated as per the guidelines. Individual vessels must work for a 2 per cent improvement in their carbon intensity from 2023 to 2030, or else they will be banned from the trade route. 

The investment bank’s research also specified that the EU’s Carbon Border Adjustment Mechanism (CBAM) is capable of deranging the usual export routes of important commodities like iron, aluminium, steel, cement, fertiliser, hydrogen and electricity to the European territories.

Once the rules of CBAM are activated by 2026, importers will have to buy carbon credits mirroring the exact amount of carbon emissions generated by its operations.

“While the exact implications of the IMO and CBAM regulations on the seaport and logistics sector remain unclear, the volume of containers heading to the EU will certainly be affected,” the report suggested.

The report also notifies that almost 18 per cent of traded products will have to suffer the blows of consequence, mainly the items emerging from China, which is a giant exporter of steel, iron and aluminium to the European nations.

On the brighter side, it can be said that the local logistical sectors would flourish due to a regionally driven e-commerce industry.

“Industry experts project the local gross e-commerce merchandise volume to grow at a CAGR (compound annual growth rate) of 11% from 2022 to 2027, while its size could reach RM1.65 trillion by 2025 from RM1 trillion currently,” the report added.

The need for local distribution hubs is estimated to grow since the demand for quick delivery will increase. This will closely-knit the entire industry, bringing the end customers and the dealers into one place, resulting in warehouse decentralisation. This will, in the long term, decrease logistical expenses and other ancillary risks in the supply chain.

Kenanga Investment Bank Bhd has fixed an “outperform” rating above the counter, with a target rate of RM1.00, whereas the firm has picked Bintulu Port with an “outperform” rating and a target price of RM6.00. Bintulu Port’s last officially levelled benchmark price was RM5.00, with a market value of RM2.3 billion.