Qingdao, the second largest port in terms of foreign trade, has been severely battered by the steep drop in exports of industrial intermediary material. In October last year, the throughput of chemical fertilizers dropped by 98 percent from a year earlier. Shipments of steel products through the port dropped by 51 percent year-on-year, and that of bauxite fell 60 percent.

Since late last year, Chang has been frequenting neighboring ports in Shandong province and negotiating with officials on the possibility of cooperation and integration. On Feb 25, Qingdao port, Yantai port, China's 11th largest, and Rizhao port, the ninth largest, signed a strategic cooperation agreement. The three ports agreed to pool resources to build Qingdao into a shipping hub in Northeast Asia to compete with other northern Chinese ports such as Dalian and Tianjin, as well as foreign ports such as Busan in South Korea.

Last year, the three ports had a combined cargo throughput of 550 million tons, slightly less than Shanghai Yangshan port's 580 million tons.

There are a number of areas in which the three ports can cooperate. Qingdao is the world's largest, and Rizhao, the second largest port in iron ore shipments. Yantai port also handles large volumes of iron ore imports. It is also building facilities to handle 300,000 tons of iron ore a year. Closer cooperation among the three could help maximize the efficient use of available facilities by eliminating duplication.

Local ports have been massively constructing wharfs to cash in on the fast growing shipping market. As the business has turned sluggish, many wharfs are being left unused.

This is a great time for M&As as the market is deteriorating, said analysts.

Last December, Jinzhou port, a regional port in Liaoning province, got approval to issue 246 million shares at a price of 7.77 yuan to Dalian port. The deal, when completed, will make the latter the second largest equity holder in Jinzhou port.

The deal is likely to be followed by a wave of asset integrations between Dalian port and other smaller ports in Liaoning province, including Huludao, Panjin and Dandong ports, said Niu Yuming, a shipping analyst at Haitong Securities.

(China Daily 03/25/2009 page15)