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.
Everybody knows the shipbuilding industry in Asia is going through hard times, but just how bad appears to have even taken some of the experts by surprise.
Analysts who cover China Rongsheng Heavy Industries had been expecting the company to report a 584 million yuan ($93.76 million) net profit for 2012, according to a poll conducted by Thomson Reuters. Instead, China Rongsheng shocked many when it announced Monday that it expects to incur a net loss for 2012, citing falling orders and prices for new vessels as reasons.
During Thursday’s session, the first trading opportunity since the profit warning, the shares were knocked 7.4% lower, though they sat unchanged Friday morning in Hong Kong.
For the most part, the woes facing Rongsheng — China’s biggest private shipbuilder — had been well flagged. In the first half of 2012, global ship orders totaled 20.91 million tons worth of new vessels, a drop of 59% from the same period a year earlier.
Some analysts were even careful to point out that Rongsheng was especially at risk, as its single largest customer for very large ore carriers — Brazilian iron-ore producer Vale VALE -0.29% — was likely to ask for delays in its ship orders currently pending.
A 400,000-ton iron ore carrier owned by Vale stirred up controversy last year when it docked at the mainland Chinese port of Dalian. China’s Ministry of Transport banned these huge bulk vessels and oil tankers from docking at its ports in February 2011 after lobbying by Chinese shipping companies worried about the deflationary effects on bulk-shipping rates.
“The shipping companies were worried about low freight rates in the future if Vale continued to transport minerals to China on its own,” Citic Securities said in note in February.
Vale has pending orders for 15 of these massive ore carriers with Rongsheng, according to Citic.
Delivery of the ships could be pushed back over a period extending through to 2016, according to Citic, which warned at the time of writing in February that the delays would pose “significant” earnings risk to Rongsheng.
Meanwhile, Citi Research, which initiated coverage of Rongsheng in a Dec. 10 report, warned investors to avoid the company’s shares.
Citing structural headwinds affecting the shipbuilding sector, the research house said orders for new ships could remain depressed for several more years due to the “severe excesses capacity” that exists as a result of the over-ordering between 2006 and 2008.
The global shipping fleet is expected to have grown 10% in 2012 — more than twice the rate of growth in seaborne trade — thanks to deliveries of ships that were ordered in the pre-crisis years, Citi said. The increase comes even as shipping companies retire older vessels at a record pace, according to Citi.
Meanwhile, other analysts noted that China’s state-owned shipyards weren’t helping the situation, as they have so far resisted scaling back shipbuilding capacity in spite of glut of cargo and ore carriers plying global trade routes.
China’s shipbuilding winter of discontent has hit new lows with latest figures showing that in November the nation’s yard contracted just 620,000 dwt of new orders, its lowest total since May 2009, just after the global financial crisis. The China Association of National Shipbuilding Industry (CANSI) said November’s figures were down 84% year-on-year.
In the first 11 months of this year, China's new orders declined by 49.4% year-on-year to 17.04m dwt and its delivery volumes dropped by 18.2% to 50.55m dwt.
China's shipbuilding and its related industries' operating profit and total profit all made decreases in October.
The China Association of National Shipbuilding Industry (CANSI) reported that operating profit of China's 1,647 shipbuilding-related companies over a certain level slightly declined to CNY 557.7bn ($89.5bn), during the first ten months of this year.
Shipbuilding industry declined by 4.8% year-on-year to CNY 413.1bn, while ship equipment and ship repair marked CNY 86.2bn and CNY 12bn, up by 18.8% and 8.1% each.
Meanwhile, from January to October of 2012, China's shipbuilding-related industries over a certain level saw their total profit decreased by 37% year-on-year to CNY 23.4bn.
Among them, shipbuilding and ship equipment industries dropped by 42.7% and 5.8% year-on-year to CNY 18.4bn and CNY 3.5bn, respectively, and ship repair record a loss of CNY 50m, down by CNY 101m against a year ago.
Chinese shipyards' steel-ship delivery has dropped in November.
According to latest report from National Bureau of Statistics of China, in November, Chinese shipbuilders delivered overall 5.97m dwt of privately-owned newbuilding steel ships in November, which declined by 21% from 1.63m dwt on the previous month and down by 29% year-on-year.
During the first eleven months of this year, total steel-ship delivery from Chinese shipbuilders decreased by 12% year-on-year to 67.95m dwt.
China saw newbuilding orders sharply increased in November.
A total of 117 vessels - 12 handy bulkers, four VLCCs, six VLGCs, two PCTCs, one offshore-related vessel, seven chemical tankers, two offshore drilling platforms, etc. - were booked from Chinese shipbuilders, which massively increased by 143.8% month-on-month, according to China Water Transport.
Meanwhile, average newbuilding prices for November showed a decline. Average newbuilding prices of VLCC, suezmax tanker, aframax tanker and product carrier were $94.38m, $57.5m, $49m and $34m, which dropped by 0.7%, 0%, 0% and 0% each.
Those of capesize, panamax, handymax and handysize bulkers were decreased by 0%, 0.2%, 0% and 0.36% to $46m, $25.8m, $24.3m and $21m, respectively.
Also, average prices of 82,000-cbm LPG carrier, 160,000-cbm LNG carrier, 4,800-teu and 1,700-teu boxships declined by 0.2%, 0%, 0% and 0.8% to $70.25m, $200m, $45m and $25m each.
While China's three shipbuilding indexes all keep falling up to September this year, local sources predicted that Chinese shipbuilding market would stay in the doldrums for a while.
China's CIConsulting said newbuilding demand has consistently remained bearish since the end of last year amid sluggish global economy and shrinking international trade. Moreover, weaknesses of Chinese shipbuilding industries are standing out with each passing day, it added.
CIConsulting predicted Chinese shipyards would meet a gust of changes, saying transition into offshore business should be based on each shipbuilder's capacity, potential and current situation.
However, yard overcapacity will be a setback to shipyards' development.
Also, it suggested that Chinese shipyard should pay more attention to green ship, with tightened and more international regulations over environment.
As shipbuilding and design capabilities on eco-design ships will affect shipyard competitiveness, Chinese shipbuilding industries would better preoccupy the segment with full-fledged R&D.
Moreover, offshore segment is important as it links further to subsea market.
Chinese shipbuilding industries are struggling against new order drought and troubled shipping market.
According to latest report from the Ministry of Industry and Information Technology (MIIT), during the first nine months of this year, Chinese shipyards' overall delivery declined by 18.5% year-on-year to 41.58m dwt, while new orders plunged to 15.41m dwt, down by 46.9% on the same period of last year.
As of the end of September, Chinese shipbuilders stood at 121m-dwt orders on the book, down by 19.4% against the end of 2011.
Industry analysts blamed the the troubled Chinese shipbuilding industries on tonnage overcapacity, rising oil and other costs as well as uncertainties in world economic growth caused by Europe's debt troubles and China's economic slowdown.