Chinese shipbuilding industry saw three shipbuilding indexes for the first three quarters of 2012 all declined, said the Ministry of Industry and Information Technology of China (MIIT) on October 22.
Also, industry player suggested that Chinese shipbuilding players would remain bearish for a while and eventually face broad-scale restructuring.
According to statistical data reported by MIIT, during the first nine months of 2012, Chinese shipbuilders delivered a total of 41.58m dwt newbuildings, declined by 18.5% year-on-year. Of them, seagoing vessels accounted for 12.36m cgt.
Overall new order decreased by 46.9% to 15.41m dwt, during the same period, of them seagoing vessel taking 6.32m cgt.
Chinese shipyards' stood on 120.9m dwt of orderbook as of the end of September, dropped by 19.4% compared with the end of 2011. Seagoing vessels accounted for 40.34m cgt and export ship took 83.8% of total volume of backlog.
Chinese shipbuilding industries' proportion of bulker order has not reached half of overall new order for the first time since 2006.
According to Clarkson, proportion of bulker order of all newbuildings contracted by Chinese shipyards year to date stands at 45%, while containership, tanker and gas carrier taking 10% each.
From 2007 to 2011, bulker proportion used to be around 60% but this year saw lower than 50% for the first time since 2006 with 28%.
Particularly, gas-carrier ratio exceeded 10% for the first time this year with 11.9%, in lines with increasing proportion of boxship.
As ordering for bulker sharply decreasing this year, Chinese shipyards booked relatively more orders in segments, such as containership, tanker, gas carrier, etc.
The global shipbuilding industry has seen a mild recovery as orders for new vessels rebounded to more than 3 million deadweight tons last month, and Chinese shipyards were still leading the industry.
According to the latest statistics released by Clarksons Plc, the world's leading provider of shipping services, a total of 79 new vessels, totaling 3.2 million deadweight tons, were ordered in shipyards across the world in September. The volume was 7.7 percent up from the same period last year and 9.6 percent up from August, data showed.
China still leads the world shipbuilding industry in new orders. Chinese yards received orders for 34 new vessels, totaling 1.92 million deadweight tons, accounting for 60 percent of the world's total new-order volume and an 81 percent increase from the same period last year.
Chinese shipyards have secured new ship orders totaling 14.6m dwt during the first eight months this year.
The figure is down by 48% against the same period of last year, data from the China Association of the National Shipbuilding Industry shows.
Of the newbuilding orders, 11m dwt was for export deals, which also fell 48% year-on-year.
As new orders continue to decrease, China's entire newbuilding orderbook also shrank to 123.8m as of August end, down by 30% compared to a year ago.
So dire is the order drought in China that even Japan is set to overtake the PRC according to a recent report from South Korea.
Analyst Park Mu-Hyun of E*Trade Securities in Korea said that Chinese shipbuilding industries are now collapsing and Japan will take back second place in the global shipbuilding pecking order.
Japan’s focus on single ship types – eco-bulkers – has paid off with many yards still reporting orderbooks stretching into 2014.
"Japan with a long shipbuilding history knows it very well that focusing on one's specialty will eventually raise its competitiveness," Park wrote in his recent report.
The global collapse of shipping rates and general oversupply of vessels as well as the slow-down in the Chinese economy is forcing more and more Chinese ship building companies to close shop.
According to a report in the Southern Metropolis Daily, a newspaper serving the Pearl Delta region in southeast China, the China State Shipbuilding Corporation general manager Tan Zuojun recently said that 50 percent of mainland Chinese ship builders will be closed in the next 2-3 years.
A staff member at the Taizhou Economy and Information Technology Bureau told 21cbh.com that companies are running on borrowed time. Some still have old orders to complete, as the building cycle for a large ship can span several years, but without new orders coming in, the number of companies to go bust might be even higher than anticipated.
Due to the long build-times, the shipbuilding sector is prone to large boom and bust cycles, as production cannot be adjusted quickly. At this moment, there is a persistent glut in vessels and productive capacity on the global market. Mainland China alone has enough capacity to service the entire world’s demand for new ships, as was reported by a Chinese shipping industry newsletter.
According to China Economic Weekly, mainland Chinese state and private companies went into the shipbuilding business in a large scale beginning in 2007. Relying on low raw material costs and underpriced labor, the industry grew by leaps and bounds.
In 2010, the Chinese shipbuilding industry overtook South Korea as the world leader in total shipbuilding capacity. During its peak, there were over 3400 shipbuilding companies in China compared to 329 shipyards—including different yards of the same company— in the United States today according to data sourced by the website shipbuildinghistory.com.
Two years later, however, sailing is not as smooth anymore for the Chinese shipbuilding industry. Data released by the China Shipbuilding Industry Association Aug. 28 shows that during the first seven months of this year, the three major indicators relating to production and orders were pointing down.
Total finished capacity amounted to 35.49 million tons, a 7.7 percent decline compared to same period last year. Total new orders amounted to 11.64 million tons, a 50.7 percent decline from last year. The current order-book stands at 123.48 million tons, a 29.9 percent decline from last year.
The situation is quite bleak according to Shanghai International Shipping Research Center deputy director of market analysis Zhang Yongfeng. He told Time Weekly in July this year: “With the worldwide shipping industry continuing to be in a slump, the Chinese builders are entering a bitter cold winter period: It’s hard to get orders, hard to meet orders, it’s hard to finance, we have high costs and low profit.”
These factors put enormous economic pressure on these very capital-intensive companies. As the new order flow stalls, many Chinese shipbuilding companies were shutdown down over the past year.
According to a report by Chinese Economic Weekly on Sept. 4, the main factors affecting the Chinese shipbuilding industry are tight lending standards, a reduction in new orders, and the difficulty to deliver on old orders—higher input costs and lack of financing are some reasons for delays, which usually carry heavy penalties. The most pessimistic prediction says the number of shipbuilding companies will go down from 3400 at its peak to less than 300, according to the report.
Data released by the Leqing City Economy and Information Technology Bureau in Zhejiang Province provides some more color on this dire prediction: Among the 23 shipbuilding companies in Leqing, 13 were still operating normally at the beginning of this year, but now there are only 7 left as more than two-thirds of the companies have stopped production.
Hu Jintao, director of the Shanghai Merchant Ship Design and Research Institute, told Dongfang Daily, a local newspaper in Shanghai, that 2012 is only the start of it and it will get worse in 2013 and 2014.
Experts suggest that the brisk development of the Chinese heavy industries is reminiscent of the infamous “Great Leap Forward” in the 1960s, where China set ambitious goals for heavy industry production that lacked the necessary infrastructure and resulted in a famine that killed millions of people.
Today, China mainly builds low value-added large ships and does not have the necessary technological prowess that provides an edge.
At a forum held on Dec. 15, 2011 in Taizhou City, Jiangsu Province, a leading expert in the field, Shen Wensun of the Chinese Academy of Engineering, said: “Regarding key technologies in ship design, research, manufacturing and development of key components, [China] still lags behind Europe, Japan, South Korea and other advanced nations and regions. …There are too many copy-cat companies that lack innovation and most stay at the initial stages,” according to a report by Cansi.
At the same event, Chinese Academy of Engineering academic Zhang Bingyan said that increasing energy efficiency and reducing pollution are the big trends in new ship design and that those who don’t have these technologies will not get any new orders.
In the first half of 2012, the global economic downturn and weak international trading activities continued to exert pressure on the shipping industry, which has been struggling since the second half of 2011.
The imbalance between supply and demand of the shipping industry further worsened, leading to a reduced overall shipbuilding demand, and new shipbuilding orders plunged significantly.
According to the latest Clarkson Research report, new worldwide shipbuilding orders decreased by 46.0% year-on-year for the Period measured in deadweight tonnage (DWT), while new shipbuilding orders in China fell 49.0% year-on-year in the same period.
In this adverse market environment, Rongsheng Heavy Industries Group adopted a defensive sales strategy by avoiding low-price orders or orders with unfavorable payment terms while moving towards the high end of the value chain. The company received new orders for 2 vessels for the six months period ended 30 June 2012, representing a total volume of 152,000 DWT with a total contract value of USD55.6 million.
The Group’s total orders on hand as at 30 June 2012 consisted of 101 vessels, representing a total volume of 15.1 million DWT with a total contract value of USD5,884.9 million. It included 48 Panamax bulk carriers, 19 very large ore carriers (VLOCs), 23 Suezmax crude oil tankers, 1 Panamax crude oil tanker, 2 very large crude oil carriers (VLCCs), 4 6,500-twenty-foot equivalent unit (TEU) containerships and 4 7,000-TEU containerships. All the vessels in order book will be delivered within the period from 2012 to 2015 as stated in the contracts.
For the Period, the company has delivered 11 vessels, representing a total volume of 1,864,000 DWT and increased by 44.7% year-on-year. Including 2 VLOCs that RHSI delivered for the Period, the company has increased the number of VLOCs delivery to 3 so far.
These vessels are currently the world’s biggest dry bulk carriers with the largest cargo capacity, featuring state-of-the-art technologies for the mega-sized bulk carriers.
Chinese shipbuilding industry cannot be optimistic, having new order plummeted by 50.3%.
According to China.cnr.cn, China Shipbuilding Industry Corporation (CSIC)'s vice president said that plunged import of iron ore, core, etc., and increasing number of idle ships have caused decrease in shipowners' newbuilding investment.
The vice president said Chinese shipyards' overall newbuilding order during the first half of this year plummeted by 50.3% amid global economic difficulties and Eurozone crisis.
Also, traditional shipping finance specialized banks in Europe have tightened their finance in the segment, which resulted in newbuilding investment.
In a report from the Minisry of Commerce of China, during July of 2012, new order decreased in China, while Korea saw more orders, as China focused on sales of low-value commercial ships, especially bulkers.
He said that Chinese shipbuilders, which face difficulties in being placed orders for high-value vessels, are comparatively more unfavorable, many of small-and-medium shipyards are prospected to fall behind from the market.
The vice president said most of small-to-medium sized shipyards in China just started shipbuilding business during the flourishing period and takes 50% of overall Chinese shipyards. He questioned about CSIC's acquisition of those yards.
While there is no new order or no demand for newbuildings, the acquisition of these yards by China's large state-owned shipyards would be of no help. He said that CSIC, at present, has no plan for M&A.
Lastly, he added that Chinese shipbuilding industry would be stuck with depression over the next three-to-four years.
A shipbuilding boom raised the fortunes of this hardscrabble industrial port. Five-star hotels sprouted along with machinery depots and metal shops. European luxury cars darted past heavy trucks on the bustling streets.
But in another sign ofChina'seconomic slowdown, shipyards are now closing and half-finished vessels lie rusting in the humid haze. Prosperity is receding like the tide.
Thousands of laborers have lost their jobs. Liu Danyin, a compact man with bulging forearms, found so much work in the region's shipyards over the last decade that he built a new home for his family hundreds of miles away in the countryside. Then he was laid off suddenly last year.
"Many companies collapsed," said Liu, 48, who recently took a lower-paying job building a sea bridge. "There used to be so much energy and life here. Now they don't build ships anymore."
The hard times that have befallen Yueqing, a county in the eastern province of Zhejiang, are playing out at shipbuilding bases across China, from the northern port of Qingdao to the silt-filled Yangtze River in the central heartlands.
The bellwether industry's troubles have their roots in a shipping boom that started a decade ago. Global investors rushed to finance new vessels needed to haul coal and copper toChina'shumming factories and to transport finished electronics, toys and other exports out. China went from producing just over 100 vessels in 2002 to more than 1,000 in 2010, according to Worldyards, a Singaporean-based shipping industry research firm.
That over-exuberance resulted in a glut of ships. It's a problem that has worsened as China'seconomy has decelerated along with that of its major trading partners — Europe and the United States. Fewer customers for Chinese exports and a shrinking appetite at home for raw materials mean fewer vessels needed to carry that cargo.
Ship values have plummeted and many owners now owe more on their loans than their boats are worth. And all that capacity is putting downward pressure on shipping rates as Chinese transport companies seek new markets abroad to keep their vessels working.
"The building binge was overwhelming," said Ralph Leszczynski, the Beijing-based head of research at ship broker Banchero Costa & Co. "People earned so much money they didn't know what to do with it. The Chinese started opening shipyards every day. But it created a bubble. Now everyone is paying for the hangover."
Shipbuilding is typically a cyclical industry nagged by overcapacity every few years. But experts say this trough is being prolonged by the scope ofChina'sseafaring expansion.
Under central government guidance, China poured money into developing its shipbuilding and maritime logistics sectors, deeming them crucial for the nation's development.
China is home to six of the world's 10 busiest ports, including Shanghai, which is No. 1. The state-owned China Ocean Shipping Co. operates the globe's largest fleet of bulk carriers and fifth-largest fleet of container ships. China also dominates the manufacturing of cargo containers.
And it has edged out South Korea to become the world's largest shipbuilder. China commands nearly half the globe's market share for shipbuilding — more than five times the share it held 10 years ago, according to Worldyards.
China said this year that it aimed to nearly double its annual ship sales to $190 billion by 2015. The plan also calls for industrywide consolidation that will benefit big government-owned players such as China State Shipbuilding Corp. and China Shipbuilding Industry Corp., which combined to produce about one-third of the nation's shipping output last year.
"With shipbuilding it is fair to say that China has been obsessed with maintaining or increasing its market share, even if the result is that there are too many ships chasing too few cargoes," said Simon Bennett, a spokesman for the London-based International Chamber of Shipping.
ButChina'sgrowth has hit a wall. The China Assn. of the National Shipbuilding Industry reported Chinese ship orders declined 47% to 9.54 million deadweight tons the first five months of this year from the same period last year. Meanwhile, ship exports slumped 48% from a year ago to 6.84 million deadweight tons (a measure of the maximum weight a ship can carry).
Small and medium-size shipbuilders such as those that crowd the Yueqing coast have been hit the hardest. Some may have to destroy their ships to sell as scrap. Others have already chosen to get into the logistics business to recoup whatever losses they can. Among them, none has fallen further than Dongfang Shipbuilding Group.
The family-run shipper and manufacturer of mostly chemical tankers for European and Chinese customers was flying high last August. That's when it became the first Chinese shipbuilder to list on the London Stock Exchange's Alternative Investment Market, a venue for smaller companies.
But within months, Dongfang's position deteriorated. Customers canceled $52.6 million in ship orders. An additional $14.5 million in contracts were voided when buyers failed to provide advance payments, according to stock exchange filings.
Dongfang's chief operating officer and the chairman of its board resigned. Its shares in London were suspended in March. In early June, a consortium of banks, including Credit Suisse, seized seven of its vessels because of about $250 million in outstanding debt.
Today, Dongfang's Yueqing shipyard remains largely abandoned. Its three burnt orange gantry cranes stand idle over a pair of unfinished tankers covered in scaffolding. Chen Tongkao, the company's chief executive, hasn't been heard from publicly in months and is suspected of fleeing the country. Dongfang did not respond to repeated requests for comment.
"Bosses are running away," said Zhang Shuguang, a nearby manufacturer of ship rudders and propellers who has seen his orders reduced to a trickle in the last year. "Costs are so high and profits are so little. I don't think anyone wants to be in this business anymore."
China's shipbuilding industry is sinking into a serious slump with major shipbuilders seeing a dramatic fall in new orders in the first half of the year as a result of the stagnant global economy, the country's shipping industry associations and shipbuilders said this week.
"The shipbuilding industry is now hitting the bottom of downturn with a sharp decline in new orders for the first six months of the year, and the situation is unlikely to improve in the very near future," Ye Meng, vice secretary-general of China Shipowner's Association (CSA), told the Global Times.
"The entire industry is experiencing the worst time in a decade and our business is not immune to the industrial slump," said a spokesman with China Rongsheng Heavy Industries Group, who declined to be named.
"We did get new shipbuilding orders of some 300,000 deadweight tonnage in the first half of the year, but it was a dramatic fall from last year when we ranked first in China in terms of new orders for the entire year," the spokesman said.
According to the spokesman, receiving new orders does not necessarily mean good news as the contracted prices have been pushed down too low to make a profit.
China Rongsheng's plight is just the tip of the iceberg. China's shipyards secured contracts for just 182 ships in the first six months of the year, the South China Morning Post reported Tuesday, citing data from London-based market researcher Clarkson Research Services.
In tonnage terms, Chinese shipyards secured deals for 3 million compensated gross tons between January and June, against 32.54 million compensated gross tons at the peak in 2007, the report said.
Data released by the China Association of the National Shipbuilding Industry (CANSI) last month also showed that China's new shipbuilding orders fell more than 47 percent year-on-year during the first five months.
Meanwhile, the average reading of the Baltic Dry Index (BDI), a measure of the cost of shipping dry-bulk commodities, hovered around at 1,100 points in recent weeks, far below the break-even point of 2,000.
"The profit margin is narrowing due to low prices and as instances of contract defaults rise. Many shipbuilders along the Yangtze River and small private ones went bankrupt," said Ye of CSA.
About 50 percent of shipbuilding companies in China may go bankrupt in the next two to three years, Securities Daily reported early this month, citing Tan Zuojun, general manager of China State Shipbuilding Corporation.
"The sluggish world economy resulted in sluggish demand and oversupply of ships during peak years also complicated the situation," said Deng Xuanling, vice secretary-general of CANSI.
"To tide over the bad times, we hope the government could cut taxes and allot special funds to support those shipping enterprises which promote technical innovation and develop clean energy vessels," Ye said.