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.
China's shipbuilding industry has reached a critical juncture, after having been overtaken by South Korea in 2011 as the world's largest ship manufacturer. Its once strong shipbuilding firms have seen sharp declines both in terms of output and new orders in the first five months of this year thanks to falling global demand and a shrinking foothold in the market.
It is very likely that insufficient demand from abroad will continue to squeeze the sector's profitability for some time to come. If the industry remains in the doldrums, more than half of China's shipbuilders will face bankruptcy in the years ahead. But how can China's ship manufacturing industry cope with the severe challenges facing it? I have three suggestions.
First, ship makers should build up their scale and shore up their cash flows through mergers and acquisitions. For ship companies, having a steady supply of cash is critical for survival given the high fixed costs of the industry. Adding to cash supply pressure is the fact that most clients only provide a 30 percent down payment on ship contracts, which means that most ship makers have to scrape by financially until their orders are complete.
When the market is good, companies with tight cash flows can get by with prepayment money from the next order to complete the current deal. But, with the current downturn, an inability to get new orders has forced a sizable number of small and medium-sized ship builders to close down.
Chinese shipbuilders also need to step up their technological and management prowess in order to sharpen their competitive edge. At present, most ship makers in China still rely on cheap labor as their sole advantage. It is estimated that Chinese workers in the shipbuilding industry are paid only one tenth as much as their Japanese counterparts and only one sixth of what their peers in South Korea make. With many workers across China seeing their salaries grow by double-digit figures in recent years, the inexpensive manpower the country's ship makers have relied on for so long may soon evaporate, leaving them with little else to offer.
Finally, confronted by a weakening traditional market, ship companies should also pursue new market space. For example, boat manufacturer Sunbird managed to maintain profit growth by focusing on private yachts. Also, Jiangsu Zhenjiang Shipyard Co has weathered the industry downturn by turning to specialized vessels, such as ocean salvage ships.
According to CANSI, China ship industry has seen in overall weakness in the first five months this year. The three main shipbuilding indices, industrial output growth, ship export and economic growth have all been greatly depressed in the global shipping market downturn.
By the end of May, national new orders and newbuilding output totaled at 9.54m dwt and 22.53m dwt, falling by 47.3% and 10.1% separately year on year. Order catalog fell by 27% to 134m dwt, 10.4% down since the end of 2011.
In the period, national ship industrial output reached CNY319.5bn, increasing by 5.1% against the same period of last year. Shipbuilding, ship equipments, ship repairing, ship conversion and offshore plants respectively realized industrial output value of CNY240.6bn, CNY45.2bn, CNY7.08bn, CNY 13.5bn and CNY11.3bn. The traditional shipbuilding industry has seen the hardest hit.
In the first five months, China’s national ship export volume came up to 18.79m dwt, 11.5% down on year-on-year basis. New export orders and export orderbook have decreased by 48.4% and 27% to 6.84m dwt and 115m dwt separately. 83.4% of the delivered vessels, 71.7% of new orders and 85.3% of orderbook were for export.
Amid global economic slump, overall Chinese shipbuilding industry turns out to be under depression.
During the first five months, Chinese shipyards' newbuilding delivery and new order stood at 22.53m dwt and 9.54m dwt, down by 10.1% and 47.3% each, while orderbook, at the end of May, was 134m dwt, down by 27% yoy and by 10.4% on the end of 2011.
During the same period, China's delivery of export newbuildings decreased by 11.5% to 18.79m dwt and 6.84-dwt export ships have been newly ordered, down by 48.4%. As of the end of May, backlog for export ship declined by 27% y-o-y to 15m dwt.
Export ship accounted for 83.4%, 71.7% and 85.3% of China's overall newbuilding delivery, new order and orderbook, respectively.
During January-May period, export trading from China's shipbuilding-related companies above certain level reached around CNY 112bn ($17.6bn), down by 10.7% on the same period last year, of which shipbuilding industry saw a drop by 11.3% to CNY 102.6bn, while ship equipment and ship repair industries increased 2.8% and 6.6% to CNY 4.35bn and CNY 1.84bn each. Ship conversion declined by 21.5% to CNY 880m, while offshore facility construction industry sharply increased by 42.7% to CNY 780m.
Meanwhile, during the first five months of the year, 1,630 shipbuilding-related companies above certain level in China's overall production value stood at CNY 319.5bn, up by 5.1% year-on-year. Of them, shipbuilding and ship repair industries rose by 0.7% and 10% to CNY 240.6bn and CNY 7.08m each. Ship equipment and ship conversion grew by 27.1% and 24.6% to CNY 45.2bn and CNY 13.5bn. Offshore facility construction also increased by 11.4% to CNY 11.3bn.
Chinese shipbuilding industries forecast that recent troubles would be hard to be recovered in a short period.
China Securities Journal reported that Chinese shipbuilding industries had had a boom from 2004 to 2010, but things started to go difficult from last year. Some private shipyards are even going bankruptcies.
Also, it pointed out that Chinese shipyards would take enough time to overcome current depression and during the period, they should carry out R&D and get over increasing production cost and declining productivity.
Amid global economic depression and overtonnage, decreasing demand pressures down newbuilding price as well, which has dropped over 40% comparing to that from the boom period and over 10% on the end of last year.
A market player said that with labor cost rising 12% every year, China has begun to lose edge on price competitiveness.
According to Clarksons on June 7, Chinese shipbuilders contracted 40 vessels of a cumulative 661,000 cgt in May, while South Korean yards booked 18 vessels of a combined 324,000 cgt during the same month.
However, Korean shipyards contracted around $1.048bn last month, exceeding China's $967m.
From January to May, 2012, Korean shipbuilders have contracted a cumulative of 2.84m cgt (99 vessels), $11.7bn, while Chinese shipyards have inked 2.08m cgt (142 ships), $3.6bn.
Meanwhile, during the five-month period, as for newbuilding delivery, Korea recorded 7.32m cgt (241 vessels) and China 7.61m cgt (437).
As at the end of May, China secured 38.72m-cgt orders on the book and Korea's backlog stood at 31.73m cgt but the difference between the two countries are getting smaller.
Amid global shipbuilding market depression during the first four months, Chinese shipbuilding industry saw its major shipbuilding-related indexes fall. Also, its total production value slowed down, export ship decreased, etc.
According to the China Association of the National shipbuilding Industry (CANSI)'s offcial data, China's delivery, during January-April 2012, decreased by 16.8% to 15.65m dwt, year on year. Chinese shipbuilders contracted a total of 7.37m-dwt newbuildings in the four months, down by 45.9%, while their orderbook at the end of April stood at 139.24m dwt, down by 26.1% y-o-y.
Export ship delivery and export newbuilding order declined by 21.4% and 49.5% to 12.67m dwt and 5.58m dwt, each. Backlog for export ship, as of the end of April, dropped by 27.3% to 117m dwt. Export ship took 81%, 75.8% and 83.8% of overall delivery, new order and orderbook.
Meanwhile, during the first four months, China's 1,624 shipbuilding-related companies over a certain level's total production value of completed product increased by 6.3% to CNY 249.8bn ($39.2bn), among which newbuilding segment grew by 2.3% to CNY 188.3bn, marine equipment rose by 26.2% to CNY 35.2bn, ship repair, conversion and offshore facility construction went up by 8.7%, 31.1% and 6.6% to CNY 5.5bn, CNY 10.9bn and CNY 8.5bn, respectively.
During the same period, total export value of ship related product from these companies decreased by 10.9% to CNY 87.9bn, of which shipbuilding industry declined by 11.6% to CNY 80.4bn, marine equipment and ship repair increased by 4.7% and 4.8% to CNY 3.4bn and CNY 1.4bn, while conversion dropped by 17.9% to CNY 700m and offshore facility construction rose by 44.3% to CNY 600m.
In the first four months, Jiangsu shipbuilding industry has been greatly depressed in the international shipbuilding slack. The three main indices of shipbuilding – new orders, orderbook, newbuilding output – have all seen great declines in the period. However, Jiangsu still takes the lead in Chinese shipbuilding market.
By the end of April this year, the shipyards in Jiangsu have delivered 144 vessels of 6.256m dwt, falling by 4.4% year-on-year in tonnage and occupying 39.9% of national total. 87.7% of the 144 ships were for export.
In the same period, Jiangsu successfully won new orders of 48 vessels and1.467m dwt, falling by 55.1% year-on-year and accounting for 19.9% for the total volume nationwide. 62.9% of the new orders were export ships.
In the corresponding time, the orderbook for Jiangsu shipyards has declined by 28.2% to 984 vessels of 51.207m dwt, of which 85.1% were for export. However, the final volume still accounts for 36.7% of national total.
Since the beginning of the year, shipowners have delayed, cancelled and stopped more new orders, which makes the conditions for shipyards more challenging. Shipyards will try every means to make sure the scheduled delivery realized in the following months of the year.