As scrappings for small-and-medium vessels getting larger by high oil price, South Korea's small-and-medium shipyards, including Hyundai Mipo Dockyard, STX Offshore & Shipbuilding, SPP Shipbuilding, Sungdong Shipbuilding & Marine Engineering, etc., are expected to rebound.
Clarksons forecast that 2012's scrapping would reach 51.1m dwt, exceeding the highest record of 41.4m dwt from last year.
Market player explained, "As bunker c oil price reached $700, bulkers reduced speed to consume less fuel and those are not fuel efficient go to scrapping yards."
IMO's regulation on green gas emission to be applied next year will also boost scrapping activity.
An official from Hyundai Mipo said, "As scrappings of small-and-medium size vessels increase, replacement demand grows accordingly. Moreover, since owners consider newbuilding price hit bottom, newbuilding market would be hotting up in the second half this year."
Market player said, "Owners in the Middle East tend to demand fuel-efficient vessels, in spite of high pricing."
South Korea would see more orders in the second half this year than the first half. In 2011, $38bn were contracted in H1 and $12.8bn in H2, typically more orders in H1. However, prospected orders for H1 and H2 this year are $20.6bn and $28.2bn each.
Analyst Kim Hyun of Shinhan Investment Corporation forecast that prices of second-hand vessels would stabilize and likely to increase, as major three shipping indexes - BDI, CCFI and WS - are expected to rebound after March.
Firming second-hand pricing will be helpful to owners' improvement of liquidity, which will lead to cause market recovery and increase newbuilding orderings, in the long term.
In case of freight rate, it has been standing at the lowest level in the last 10 years, however, it is possibly to rise in the second half.
According to Kim, in case of containership sector, owners aim to control tonnage and rise rate through alliance, which resulted in increasing CCFI (China Containerized Freight Index).
In case of tanker, product carrier and chemical tanker is expected to recover faster than VLCC. Also, bulkers are in uptrend, with increasing BDI. Therefore, it is less likely that market would go bad again.
Meanwhile, Kim said 2011's LNG carrier, drillship and offshore plant boom will be shrink a little this year. With delayed Final Investment Decision (FID) for Nigerian Brass project and Russian Shtokman project, LNG market is concerned to be daunted, while Korean Big3 contract just optional drillships.
In 2012, 40 LNG carriers and 25 drillships are to be ordered, which are lower than last year's 52 LNGCs and 38 drillships new deals. But prospected offshore plant orders this year are estimated to be overall $14bn, which would be similar to last year.
Kim forecast, "As there will be some orderings for LNG carrier and offshore plant and major shipping indexes will turn around this second half, after showing lowest performance in the third quarter, it will resume to make a steady growth till earnings recovered in 2014."
Kim also stated that ship financing market will be recovered and LNG-carrier ordering will resume after the second half this year, Big3 will achieve average order of $14bn in 2012, of which LNG carrier and offshore facility accounted for 82%.
In April, South Korean shipbuilding industries seized over half of new orders in the world and exceeded cumulative order of $10bn.
According to Clarksons on May 4, Korean shipbuilders contracted 17 vessels (543,943 cgt) of $2.3bn last month, accounted for 53.4^ of global new order. Chinese yards contracted 16 vessels (208,732 cgt), totalling $410m, accounted for 20.5%.
As a result, in the first four months, Korea booked overall 81 vessels (2.52m cgt), $10.62bn in total, while China inked 87 vessels (1.23m cgt), totalling $2.32bn.
In April, overall 51 vessels, 1.02m cgt were contracted in the world, the lowest after 55 vessels or 0.746m cgt in September 2009.
From January to April this year, a total of 277 vessels of a cumulative 5.152m cgt were ordered, just taking about 38.8% of 622 vessels of a cumulative 13.3m cgt on the same period last year.
Meanwhile, as of May 1, global orderbook stood at 5,554 vessels of a cumulative 107.5m cgt, the lowest since January 2006 (5,773 vessels, 105.3m cgt).
Korea had 1,013 vessels of a cumulative 33.4m cgt on the book, lowest since March 2005 (1.070 vessels, 33.3m cgt). Also, China secured the lowest orderbook of 2,312 vessels of a cumulative 40.36m cgt since May 2007 (2,726 vessels, 39.72m cgt).
On the second China Sourcing Summit on Petroleum Equipment (CSSOPE 2012) last month, Zhao Zehua, director of offshore industry department of CSIC, said that global offshore new order value came to $69.0bn in 2011, 130% up year on year. It is the first time offshore orders surpass other newbuilding orders in contract value and dominate global new orders.
Zhao points out that what underlies the prosperous offshore market is the high-value orders. The average price for drilling equipment and production equipment (newbuilding and conversion) is about $397m each, much higher than the average value for common newbuilding order.
The trend is likely to continue into 2012 with unanimous bright outlook for oil and gas exploration and relevant equipment development. Offshore plants feature high-tech and high value, thus the designing units, building units and supporting units can all reap huge profit in the market. It is estimated that world deepwater investment is to increase by 90% in next five years and offshore industry is also to embrace a brilliant future.
Global ship tycoons are passionate in entering the sector and Korean Big3 are all actively developing its offshore business.
Chinese shipyards are also striving to make the transition and open up offshore R&D. CSIC is planning to invest about $635m convertible bond into expanding offshore and energy production equipment capacity. Besides, COSCO, Mingde Heavy Industry and many other domestic shipbuilders are devoted to offshore plant development.
However, Zhao also put forward that Chinese shipbuilders are lagging behind both in technology and experience and thus still have a long way to catch up with the industry leaders.
Contracts for small-and-medium sized newbuilding product carrier, LPG carriers, PCTC, etc. is expected to increase, which would revive a stagnant market.
Analyst Yum Dong-Eun, HMC Investment & Securities forecast on April 30, "Small-and-medium sized vessels had seen few orders after the financial crisis in 2008 and newbuilding contract for those sizes will start off again soon."
And he prospected that Hyundai Mipo Dockyard, STX Offshore & Shipbuilding, etc., those specialized in construction of small-and-medium sized vessels, would likely to win those orders.
Yum said that Shanghai Containerised Freight Index (SCFI) reached 1488p with BDI increasing to 1156p. Particularly, freight indexes of small-and-medium sized vessel, such as BPI and BSI, etc., are recovering faster than those of larger-sized.
Yum forecast, "While a number of small-and-medium yards are going through restructuring, top tier medium-sized yards, including STX, Hyundai Mipo, etc., seem to book newbuildings more actively."
According to CANSI’s newest report on April 25, Chinese shipbuilding industry is confronted with severe challenges in the overall depressed global market: the three newbuilding indices (new orders, newbuilding output, order catalog) all witness declines on year-on-year basis, ship industry output value growth slows down, ship export volume decreases and ship economic growth shows downturn trend.
In the first three months, national newbuilding output, new orders and orderbook came up to 11.21m dwt, 5.59m dwt and 141.94m dwt, falling by 22.5%, 48.7% and 25.3% respectively year on year.
By the end of March, the national ship industry output value has been fallen for the fifth straight month to $28.7bn, 22.5% up in amount and 16.8% down in growth. Shipbuilding, ship supporting, ship repairing, ship conversion and offshore plants construction account for about $21.1bn, $3.5bn, $1.6bn, $1.3bn and $1.0bn separately.
In Q1, national total export ships stood at 9.47m dwt, declining by 22.3% against the same period of last year. Domestic shipyards received export new orders of 4.4m dwt, 50% down year on year. By the end of March, national export ship order catalog numbered 118.8m dwt and fell by 28.1% compared with last year. Export orders occupy 84.5%, 78.7% and 83.7% of newbuilding output, new orders and orderbook respectively.
According to CANSI, Chinese over-scale shipyards realized main business income of $13.9bn in the first two months, 12.7% up year on year. Shipbuilding, ship supporting and ship repairing achieved $9.9bn, $1.9bn and $1.0bn separately.
The combined profits of those yards came up to $706.3m and fell by 7.3%, of which shipbuilding, ship supporting and ship repairing accounting for 74.4%, 12.1% and 4.3% respectively.
Stepping in the second quarter, orderings for medium-sized bulker and tanker seem to increase gradually.
In April, China's Taizhou Sanfu contracted four 51,000-dwt bulkers from a domestic owner and Japan's Oshima Shipbuilding and Tsuneishi Shipbuilding contracted five 82,000-dwt bulkers and three 45,000-dwt bulkers, respectively.
As for medium range tanker, South Korea's STX Offshore & Shipbuilding booked orders for six MR product carriers, with optional six vessels more, Hyundai Mipo Dockyard and Hyundai Heavy Industries contracted two MR PCs and two LR1 PCs each. China's Guangzhou Shipyard International contracted for 3+3 MR PCs, etc.
Furthermore, after some interval, order for car carrier has resumed. Hyundai Mipo inked one 6,500-ceu pure car and truck carrier, while Imabari Shipbuilding of Japan penned for two 6,500-ceu PCTCs.
Of global PCTC orderbook, those scheduled for delivery in 2012 are 40 vessels and only five or so are to be delivered after 2013.
Orders at Japanese shipyards rose for the first time in four months in March on a year-on-year basis, increasing 8.6 percent to 1.1 million gross tons, according to the Japan Ship Exporters’ Association.
The March growth followed year-over-year drops of 2.8 percent in December, 56.7 percent in January and 23.1 percent in February.
Japanese shipbuilders received orders for 21 export ships — 16 bulk carriers, four tankers and one general cargo vessel — in March. The 21 ships total about 454,000 compensated gross tons.
For all of fiscal 2011, which ended on March 31, Japanese export ship orders tumbled 34.9 percent from the previous fiscal year to about 8.1 million gross tons. Japanese shipbuilders received orders for 198 export ships, totaling about 3.9 million compensated gross tons, for the year.
Japan is one of the world’s top shipbuilding nations along with South Korea and China. But Japanese shipbuilders are struggling as demand for new vessels among ship owners is flagging amid a slowdown in the global economy due largely to the deep European debt crisis.
Japanese shipbuilders also face increasingly tough competition with their South Korean and Chinese rivals amid the strong value of the yen, which badly erodes their international price competitiveness as it makes Japanese products more expensive abroad.
There are also growing concerns in the Japanese shipbuilding industry about the so-called “2014 crisis.” If export ship orders remain in the doldrums, order backlogs could disappear at many Japanese shipyards as early as 2014, industry observers said.
There were further reports of new business this week and as we push further into the 2Q of 2012 there is certainly enough volatility amongst the shipyards to make for an interesting environment. In its latest weekly report, Clarkson Hellas said that the situation in China continues to unfurl and yield competitively priced opportunities, with the focus primarily being on Dry Newbuilding resale’s as Shipyards struggle to manage their exposure to their own existing orderbooks.
With an increasing volume of prompt tonnage coming available to the market – there is certainly pressure on the yards to find a quick resolution here and this is dampening values down to levels that seem to be enticing interest from cash rich buyers. There is certainly a trade off here between design and price – as the new designs and later deliveries now on offer from Shipyards are certainly offering considerable efficiency savings against the wash of resales coming into the market – however – with a substantial value gap now emerging between these two opportunities in the market – for the moment price seems to be dominating decision making and a number of owners are gunning for low value and exposed contracts as opposed to a longer terms focus on efficiency” concluded Clarkson Hellas.
In a separate report, Piraeus-based shipbroker Golden Destiny mentioned that in the newbuilding market, there has been a strong activity in the bulk carrier segment that increased the total number of units ordered to 37 at a total deadweight of 1,858,500 tons, posting a 61% increase from the activity being reported at week ending April 6th. Notable order has been in the bulk carrier segment, the 5 kamsarmax units ordered in Japanese yard, Oshima, by Bahri Dry Bulk of Saudi Arabia, while in the tanker segment we have seen a LR1 order placed by Greek player, Sun Enterprises, which is the first order being reported for such vessel size since October of last year. In terms of invested capital, the total amount of money invested is estimated at region $1,858 billion with 51% of the total number of orders being reported at an undisclosed contract price. In terms of invested capital, the LNG segment appears the most overweight by holding 43% of this week’s total amount of money invested with Golar LNG of Norway placing an order for four 160,000 cu.m units at a price of $200 mil each” concluded Golden Destiny.
Meanwhile, in the demolition market, Bangladesh seems to regain its power steadily with more business sealing in Chittagong due to a renewed confidence on the back of a greater clarity in addressing the new delivery procedures and documentation coupled with the emergence of several more financially stable buyers. Scrap prices in the Indian subcontinent region remain relative flat at $460-$470/ldt for dry / general cargo and close to $500/ldt for wet, while in China price levels are still below $450/ldt. The scrapping appetite continues strong in April with high business before and after Eastern Holidays with bulk carriers being always on the frontline. During the last two weeks, ending April 13th and 20th, 27 vessels reported to have been headed to the scrap yards of total deadweight 1,639,470 tons, with bulk carriers holding 52% share of the total number of vessels reported to have headed in the scrap yards. The first quarter of the year ended with a record of bulk carriers’ disposals, while the current freight market status encourages more intense vessel removals despite the recent upturn seen during April as the BDI was pushed to more than 1,000 points mark during the last days. The overtonnage issue is so crucial for the rest of the year and the next that implies record high demolition activity and record low newbuilding appetite. India remains in the top rankings in terms of the total number of demolition transactions with Bangladesh recently being stepped in more aggressive. In terms of scrap price, the highest scrap rate has been reported in the reefer segment by India for a vessel of 7,673 dwt with 5,996 ldt built 1985 M/V “AKADEMIK VAILOV” at $510/ldt, including some 37tons of aluminium on board. India remains in the first position by winning 10 of the 27 total demolition transactions, while Bangladesh and China follows with 10 and 7 transactions respectively” concluded Golden Destiny.
As scrapping for 2012 seems to hit the highest yearly record, this would help resume newbuilding ordering cycle.
Choi Kwang-Sik, LIG Investment & Securities said on April 23 that recently newbuilding price, second-hand price and charterage all are firm in tone, BDI staying at 1,067p.
He said that scrapping of old vessels would adjust balance between supply and demand. Considering those sold for scrap during the first quarter, bulkers 5.2% of overall tonnage, tankers 3.2% and boxships 1.6% are estimated to be sold for scrap in 2012.
Added, "Increase in scrapping would boost new order in 2012 by cushioning swelling fleet."
Analyst Lee Sok Je, Mirae Asset Securities said, "It is almost clear that small-and-medium vessels is getting closer to under-supply," as Hyundai Mipo Dockyard of South Korea contracted two PCTCs, four product carriers, eight LPG carriers, one bulker, etc in the past month.
Moreover, newbuildings on orderbook to active fleet ratio stand rather low, such as PC at 11.2%, while LPG carrier at 11.5%, RoRo at 8.3%, feeder boxship at 4.4%, etc. Also, considering delivery period of 2-3 years and scrapping now soaring, shortage of tonnage supply seems quite certain.
Although tight finance holds back contracting activity, other data seem to show ordering cycle is ready to resume, he added.