Several owners with abundant cash reserves are waiting for the price to get close to the bottom.
Owners are in no rush to place new order, however, expecting additional price decreases of high-value eco-friendly ships from Japan and South Korea, which follow China's low-price policy.
Meanwhile, Japanese yards are eager to maintain its price level due to strong yen and increase in shipbuilding expenses. They are waiting for the market to recover, expecting China's low-price contracts would not be long-lasting.
Newbuilding price falling could stabilize next year as they hit a floor set by rising costs for shipyards and there is contraction in excess shipbuilding capacity.
Maritime Strategies International director Adam Kent says since the peak in 2007, when 150 Chinese yards received orders for ships of over 5,000 gt, the number of Chinese builders taking orders had declined, with some 46% of Chinese yards having not taken any new orders since 2008.
According to MSI, deliveries of new vessels will decline significantly from 2013 and there will not be a big rise in new orders.
“Shipbuilding capacity will contract due to a combination of yard closures, a return to pre-boom business models such as shiprepair, use of shipbuilding berths and workforces for non-shipbuilding activity and a reduction in berth productivity.”
Dr Kent projected that overall global shipbuilding capacity will shrink from about 160m gt annually to about 100m gt by 2015. This is still in excess of likely demand. In 2010 output was about 45m gt and slightly higher this year. But MSI expects it to drop to about 35m gt in 2012 and 32m gt by 2013.
Newbuilding price has decreased by a small margin from the early this year, however, Chinese yards' low-price newbuilding negotiation pressures newbuilding price further down.
Japanese shipbuilders aim to differentiate with their high-efficiency ship. But it seems next to impossible to win new order except a few yards inter-related with shipping company, since China offers out-of-bounds low newbuilding price.
Japan Ship Exporter’s Association (JSEA) revealed that Japan's newbuilding order during July-September period was 1.07m cgt, sharply down by 70% on the same period last year.
A lot of Japanese yards are restless with less than two-and-a-half-year newbuilding schedule at the moment, however, give careful consideration to avoid red new order.
Meanwhile, in case of Chinese shipbuilders, pelting with price competitiveness, only some yards win new order and market forecast next year would have more yards to fall behind.
China's new order for September plunges to 940,000 dwt, down by 85% on the same month last year.
Orders for newbuildings are expected to show an improved picture in the coming weeks, especially if Chinese shipyards return to the market for clients, with a more aggressive marketing and pricing policy, on the back of the fall expecienced in ordering activity.
According to the latest weekly report from Clarksons, “after a dearth in ordering in the large container sector over recent months, it will be interesting to see if the Chinese Yards for one are about to see a fresh batch of ordering, following the support they are now seeing from their domestic Owners. It is understood that China Shipping are now very imminently going to sign contracts for the first 10,000 TEU + ships to be ordered since June this year. This will see a large series of 10,000 TEU Ships penned within the State Yards. With other liner companies who are yet to make a play in the 10,000 + TEU sector still playing a wait and see game over the economies in the West, it will be interesting to see, over the remainder of this year, if they are now forced to play their hand and order to keep up with their competitors or if they will wait and see what the post Lunar New Year brings early next year.
The ability to order by said liner companies will of course be down to the appetite of the Banks to lend and the on-going profitability of main lane liner trade, for which following on from our thoughts last week, the financial debt markets in Europe don’t seem to be able to ease anytime in the near future!
With the Banks in Europe not only being forced to accept a 50% loss on Greek sovereign debt, but also now being forced to further recapitalise it seems the buyers looking to order large series of ships will be forced to look further and further at debt from the Far East. With the next twelve month slot rates for the big contracts now entering full flow too and downward pressure on these also, we will probably see more of a wait and see attitude from the Liner company executives over the next few months rather than seeing them all returning to the Yards to order a vast amount of ships over the coming weeks» said the shipbroker.
In a separate report, Golden Destiny said that the past week ended with newbuilding activity keeping its pace of growth from previous weekly levels due investors’ interest for the placement of new business in the bulk carrier and offshore segment. The bulk carrier segment has grasped the lion share by holding 69% of the total number of units ordered, up 64% from last week’s activity, with a notable order for 10 panamax units of 76,000dwt by Guangdong Lanhai Shipping of China in domestic yard, Yangfan Group, for delivery in 2013-2014.
According to the Piraeus-based shipbroker, “overall, the week closed with 26 fresh orders reported worldwide at a total deadweight of 1,141,000 tons, posting a 63 % week-onweek increase, while is standing at the same levels from similar week’s closing in 2010, when bulk carriers grasped 65% of the total ordering activity with only one contract reported in the offshore segment. In terms of invested capital, the total amount of money invested is estimated at region $1,098 billion with 57.6% of the total number of orders being reported at an undisclosed contract price. The most overweight segment appears to be the offshore by attracting about 86% of the total amount invested, due to mainly a hefty investment reported for a drillship by Atwood Oceanics Inc. of USA at Daewoo of South Korea at a cost of $600 mil, with an option for one more unit” said the report.
In the demolition market, the lower scrapping momentum continued both in terms of volume of transactions and scrap prices. Golden Destiny said that “the recent positive upturn in the dry market with remarkable earnings in the capesize segment, seems to have brought lower pace of bulk carriers disposals, which used to be the driving force behind the high scrapping activity reported so far this year. Scrap prices are still soft among all breaking nations with limited hopes for a prompt rebound due to Diwali celebrations next week and weak Indian rupee against U.S. dollar. India is now paying less than $490/ldt for dry/general cargo and xs $500/ldt for wet cargo, while China has lost some of its power regained in September by offering less than $450/ldt for dry/general and wet cargo. Meanwhile, the situation remains unclear in Bangladesh as the high court hearing that will provide another extension for import scrapping activity has been delayed for next week. The news for the accidental death of 4 persons at one of the local yards in Chittagong adds further pressure on a prompt reopening of the market. In terms of scrap prices, Pakistan emerges as the key player of the industry by offering $480/ldt for dry/general and $510/ldt for wet cargo.
The week ended with 8 vessels reported to have been headed to the scrap yards of total deadweight 213,623 tons. In terms of the reported number of transactions, the demolition activity has been marked with no change from previous weekly levels, but there has been a 14,4% decline in the total deadweight sent for scrap. The dropdown of scrapping business per week is mainly due to lower disposals for bulk carriers and tankers. In terms of scrap rates, the highest scrap has been achieved this week by India for a reefer vessel of 11,779 dwt “CLOUDY BAY” with 6,223/ldt at $495/ldt. India remains in the first rankings by attracting 62.5% of the total demolition activity. At a similar week in 2010, demolition activity was up by 37.5% from the current levels, in terms of the reported number of transactions, 11 vessels had been reported for scrap of total deadweight 347,777 tons with tankers holding 45.4% of the total demolition activity. India and Pakistan had been offering $410-420/ldt for dry and $440-$450/ldt for wet cargo, while Bangladesh market had been inactive from the demolition scene” concluded Golden Destiny.
According to the recent CANSI report, domestic newbulding output may come up to 60m DWT this year. Monthly output is much higher than new orders received, which further brings the orderbook down.
The declining orderbook, rising cost and high delivery of low-price ships are jointly squeezing shipbuilders’ profits, making conditions for those enterprises more severe. Most experts insist that future shipbuilding market structure would go through obvious changes. LNG carriers, large offshore plants and other ship types meet new regulations would continue the active momentum with bright outlook. Newbuilding price, especially bulker and tanker price are likely to linger at the low level. The currently hot containership newbuilding market is expected to calm down with growing overcapacity.
It could be a blessing in disguise in terms of helping alleviating the oversupply of vessels in the global market, but certainly the new trend emerging in ship financing shouldn’t be viewed as something positive, quite the opposite. According to Clarksons latest weekly report, the continuing dithering of European leaders to reach a deal on a suitable rescue package for the Eurozone, merely heaps more pressure on the banks and their ability (or inability) to lend to the shipping community; this issue remains prevalent in the newbuilding market, with owners and shipbuilders trying to understand the longer term implications of the turmoil in the financial world.
Clarksons said that “some of the implications are pretty clear, the flight to quality will continue, liquidity will remain tight in the ship finance markets and buyers will remain cautious in the light of both the shipping and the financial risk of an investment today. However, the longer term impact is more difficult to judge, as it is impossible to tell at the moment what measures governments will be able to take to prop up the financial system and whether this current difficult period will come to be seen as the bottom or close to the bottom of the market, or whether we are entering a new and more difficult phase for shipbuilding.
Whilst there are clearly legitimate concerns about the ability of some owners to finance the orderbook and to fund new deals, many others are still relatively cash rich and will see this period as one of opportunity rather than concern; as a result, for many owners, newbuilding activity may well continue to be driven by traditional shipping market considerations, against a backdrop of a volatile economy and strained debt market, as opposed to being totally inhibited by the financial markets; however there is no doubt that this volatile environment is certainly impacting sentiment and creating a much more conservative and cautious demand side” concluded Clarksons.
In a separate report, shipbroker Golden Destiny said that the week ended with the newbuilding sentiment being at quite firm levels with no contracting activity for a second week in the container market. “The ordering business in the offshore segment continues with platform supply vessels being on spotlight, while the primary two main segments, bulk carriers and tankers, have grasped 31% and 22% respectively of the total number of units ordered. In the LNG segment, the ordering spree seems to have no end with 4 more fresh LNG units ordered this week in South Korean yards. What is noteworthy is some uncovered business that came to light this week again by Japanese shipbuilding industry in the bulk carrier segment for panamax and capesize units, with no further details emerging for the contractor owner or the newbuilding price. In the past, we revealed some hidden Japanese newbuilding business that pushed the newbuilding momentum to higher levels of activity, but this week we decided to not report these contracts due to the misguidance they create for the firmness of the ordering momentum. Furthermore, some activity has been noticed by Chinese yards for bulk carriers, panamax and kamsarmax size, but the contractor owner has not been yet revealed and we remain cautious before reporting them” said the Piraeus-based shipbroker.
According to the report, overall, the week closed with 36 fresh orders reported worldwide at a total deadweight of 3,966,600 tons, posting a 125 % weekon-week increase due to 175% higher activity in the bulk carrier segment and 8 fresh tanker orders. This week’s total newbuilding is up by 44% from similar week’s closing in 2010, when 25 fresh orders had been reported with bulk carriers, tankers and containers grasping 36%, 24% and 32% share respectively of the total ordering activity. In terms of invested capital, the total amount of money invested is estimated at region $1,16 billion with 58% of the total number of orders being reported at an undisclosed contract price. The most overweight segment appears to be the LNG market by grasping about 74,5% of the total invested capital this week.
“In the bulk carrier segment, a post-panamax order has been revealed by Archer Daniels Midland of USA for the placement of three 95,000 dwt units in Oshima shipbuilding of Japan for delivery in 2014 at a price of $36 mil each. The vessels are designed to reduce carbon emissions by 25% compared to today’s modern units.
In the tanker segment, new ordering business came to light in the crude market with the placement of new units in Korean yards. SK Shipping of South Korea has placed an order for three VLCCs of 319,000 dwt in Hyundai at an estimated price of region $100-$102 mil with delivery in 2013, while Geden Lines of Turkey has ordered three aframax units of 115,900 dwt in Samsung for delivery in 2013-2014.
In the gas market, Stena Bulk of Sweden is said to have ordered four LNG units with Daewoo and Samsung of South Korea at a total cost of $870 mil with delivery in 2014-2015. The two LNG units with gas capacity excess of 170,000 cu.m are estimated to cost $217-$220 mil each, while the other two of 160,000 cu.m are contracted at a price region of $215 mil each” concluded Golden Destiny.