The large-scale order plan of the Chinese government for Very Large Crude Carrier (VLCC) is getting materialized in accords with its policy, “Chinese oil must be shipped by Chinese shipping company.”
Up to the present from the end of last year, a total of 18 vessels (including the eight options) were ordered and the industry eyes on it if it can reach its aim, 50 vessels.
Dalian Shipbuilding Industry (DSIC) of China, a subsidiary of China Shipbuilding Industry Corporation (CSIC) is said to have been placed an official order for five VLCCs from the state-run China Merchants Energy Shipping (CMES) on February 1. CMES said in a regulatory filing that it signed a newbuilding contract for three environmental-friendly 319,000DWT VLCCs plus two options with DSIC.
The newbuilding price is said to be approximately $85m per a ship and the delivery is scheduled between December, 2014 and the first half of 2015. The two options are said to be due within six months to come with the same price.
The state-run shipping company said that the price for the three vessels (Hull No. T300K-58, T300K-59 and T300K-60) will be provided in the form of the combination of the private placement of stock and the shipping finance.
The payment condition is that the 10% of the total price is paid four times with three intervals in advance and the remaining 60% is paid at the delivery. This is a much eased than the harsh ‘Heavy-Tail’ way (the 10-20% paid in advance and the remaining 80~90% to be paid at the delivery) which is common due to the recession in shipbuilding industry.
CMES added that the new VLCCs contracted with DSIC will be fuel efficient 20% more than their same class vessels built in 2009-2011.
The company with the fleet including 13 VLCCs announced in 2012 that it planned to place orders for up to 10 VLCCs in three years and the industry is expecting the company to sign a contract for three VLCCs with two options within this week with a shipbuilder under the roof of the China State Shipbuilding Corporation (CSSC).
Especially, Shanghai Waigaoqiao Shipbuilding (SWS) has unofficially been placed an order for three VLCCs with two options from CMES through its subsidiary, Shanghai Jiangnan Changxing Shipbuilding, for around $85m per a vessel with the payment planned at the end of 2014~2015.
Meanwhile, last December, Dalian Ocean Shipping Company (COSCO DALIAN) of COSCO group signed a contract for two VLCCs with two options for $80m per a vessel from DSIC and the COSCO’s company placed an order for two VLCCs with two options from Guangzhou Shipyard International of CSSC.
Shipbuilding and shipping market experts in China prospected that shipping market would mildly improve this year and about a total of 60m-75m dwt newbuildings would be invested in the world, amid protracted stagnant global economy, newly adopted regulations in the industry, declining newbuilding delivery and lower newbuilding prices, etc.
Also, they predicted that LNG carrier, LPG carrier, car carrier, chemical tanker, etc., would take center stage, as well as offshore market. More shipbuilding and shipping players would concentrate on developing eco-friendly technologies.
Due to shrinking orderbook and falling newbuilding prices but rising cost of production, China's shipbuilding and its related industries economic indexes would maintain their downtrend this year.
In 2013, newbuilding delivery is predicted to stay at around 55m dwt and new order to slightly grow, while orderbook would drop under 100m dwt.
Chinese market players suggested local shipbuilders builds up new growth engine with changing demand, eye niche market through structural upgrade, improve ship quality. Also, they proposed to improve China's competitiveness by tightening international cooperation and diversifying product portfolio.
China's 1,647 shipbuilding-related companies over a certain size recorded total production value of completed products in 2012 increased by 3.4% year-on-year to CNY 790.3bn ($127bn).
Shipbuilding industry saw its production value of completed products declined by 0.1% against the previous year to CNY 595.1bn, while production values of ship equipment, ship repair and ship conversion industries stood at CNY 113bn, CNY 18.1bn and CNY 31.7bn, up by 15.1%, 11.6% and 23.6%, respectively, according to latest report from the China Association of the National Shipbuilding Industry (CANSI).
Chinese shipbuilders delivered overall 60.21m dwt (19.01m cgt) in the full 2012, which saw 21% decrease on the previous year, while they contracted a total of 20.41m dwt (8.69m cgt), declined by 44% year-on-year.
China Association of the National Shipbuilding Industry (CANSI) announced its yearly report on January 25 and said Chinese shipyards' newbuilding orderbook as of the end of December 2012 stood at 106.95m dwt (36m cgt), down by 29% year-on-year.
As for export ship, in particular, delivery dropped by 21% year-on-year to 49.49m dwt, new order plunged by 46% to 14.96m dwt and backlog was reduced by 35% to 88.44m dwt.
Meanwhile, a total of 1,647 shipbuilding-related companies over a certain size saw their total revenues, during the first 11 months of last year, declined by 0.2% year-on-year to CNY 616.2bn - shipbuilding industry decreased by 4% to CNY 456.8bn, ship equipment increased by 17% to CNY 94.9bn and ship repair up by 9% to CNY 13.5bn.
During the same period, as for profits, shipbuilding industry recorded CNY 22.5bn, plummeted by 35%, while ship equipment rose by 2% to CNY 4.4bn and ship repair saw CNY 90m loss.
Especially, a total of 323 companies in shipbuilding, ship equipment and ship repair industries saw the red, with total amount of losses expanded by 2.6 times.
Fujian province expects to have the ability to build more than 8 million deadweight tons of ships each year, by the end of 2015, and to earn 70 billion yuan ($11.26 billion) for its effort, and that is just one of the goals of a recently announced Fujian provincial government plan.
The government’s “11 Measures to Transform and Upgrade the Shipbuilding Industry” calls the province to develop into an important shipbuilding base on the southeast coast of China within three years, by raising its national industrial status and technological level.
It is expected to get close cooperation from four industrial zones - Sansha Bay, Minjiang River Estuary, Meizhou Bay, and Xiamen-Zhangzhou Bay – which will work to develop two or three major enterprises that can produce one-million-DWT ships each.
The planners will evaluate production conditions and encourage the use of more modern methods and technical and R&D centers above the provincial level, which need new research equipment, can receive funding.
The province will accelerate construction work on key projects, including Mawei Shipbuilding Heavy Industries, on the Minjiang estuary, while key provincial projects will enjoy some assistance in use of sea area.
There will also be an extension of a 30-percent property and mortgage subsidy for shipbuilders, covering ships under construction, berths, and large machinery, while the financial guarantors of small enterprises can receive rewards depending on the amount of the guarantee.
Key projects will also be given priority in access to land, shoreline, sea area, and forest use and there will be subsidies for bringing in talented personnel or teams along with other policy support.
According to a report released by the China Association of the National Shipbuilding Industry (CANSI) on January 25, due to fewer orders held, the lower price of completed ships, and higher production costs, China’s shipbuilding industry is expected to continue to perform poorly this year. Approximately 55 million dead weight tons (DWT) of ships are expected to be constructed, and the number of new orders is likely to increase slightly, but the number of orders held may drop to below 100 million DWT.
Statistics from the CANSI show that over the first eleven months of 2012, shipbuilding enterprises above designated size generated total profit of 28.8 billion yuan, down 29.1 percent year-on-year (YoY). Specifically, the profit from ship construction was 22.5 billion yuan, down 35.3 percent YoY, the profit from ship supporting was 4.43 billion yuan, up 1.8 percent YoY, and the profit from ship repair was negative 90 million yuan, down 134 percent YoY.
Shipbuilding, steel and machinery manufacturing are three of the nine sectors that have been identified yesterday by the Ministry of Industry and Information Technology for a period of aggressive mergers. The nine industries involve around 900 listed companies, accounting for nearly half of all A-share listed companies.
The target on shipbuilding is, by 2015, the completed shipbuilding volume of the top ten domestic shipbuilders will account for more than 70% of the total volume, a far less fragmented picture, and one that is more akin to rival Korea. The aims is to have five Chinese shipbuilding companies on the list of the world top 10, as well as having five to six general contractors and a batch of subcontractors involved in the marine engineering equipment sector that will have international influence.
The shipbuilding merger activity officially got underway with plenty of share swapping among CSSC’s Shanghai yards designed to give Shanghai Waigaoqiao Shipbuilding a far greater focus on higher value ships.
Zhu Hongren, an official from the Ministry of Industry and Information Technology, said the major reason for the government to adjust these industries is the serious overcapacity.
The shipping industry has not been covered in the coming merger boom.
China's government may unveil fresh measures to support the country's shipbuilding and aerospace industries, China Securities Journal reported Monday.
The central government will likely extend preferential tax and credit policies to key domestic shipbuilders and makers of aircraft engines, the report said.
Chinese ministries are drawing up plans to stimulate the two sectors following studies by the Ministry of Industry and Information Technology and the State-owned Assets Supervision and Administration Commission late last year.
Particularly Chinese shipbuilders had taken a big blow last year as newbuilding orders fell dramatically and ship prices plummet.
China's shipbuilding and related industries will keep struggling in 2013 amid depressed European economy and China's economic growth slowing down.
One executive from Maersk said China should wait until the second half of 2014 for its local shipping, shipbuilding and related industries to recover.
He said recently there were occurring strikes from local shipyards. What more important is that Chinese shipbuilders would face difficulties in paying wages with tightened financial situation. Therefore, local governments are now looking for solutions, such as paying part of wages, etc.
He predicted that Chinese shipbuilding industry would be reduced by half this year, which would give local governments shock.
He added that China should cooperate to overcome current crisis and if local shipyards would be able to hold out around 18 months when the shipbuilding market would pick up then, things would get better.
Beijing is discussing how shipbuilding targets in the current five-year plan, which still has three years to run, can be hit. The plan being formulated, according to local media, favours the bigger names in the industry.
Financial support and tax breaks will be offered to the largest shipbuilders in a bid to get Chinese yards up the technology ladder and back on track with the ambitious goals set out in the twelfth-five year plan.
The news follows on from a report from London brokers ICAP last week that noted 38% of yards in China didn’t get contracts for new vessels in 2012 and 10% have no deliveries scheduled beyond the year’s end.