Eurozone crisis, coupled with fleet oversupply and a lack of ship financing keep pressuring newbuilding ordering activity.
Clarkson Hellas, in its recent weekly report, mentioned that "Although there have been some reports of new business being concluded this week, the newbuilding market has been subdued."
"As Posidonia getting closer, it will be interesting to see what announcements of newbuilding discussions are announced over the period."
The recent political and economical uncertainties in Europe have had a disparaging effect on buying sentiment from the market, however, Posidonia will give both owners and shipyards a good chance to discuss recent developments in the market, for instance, efficiency enhancements made to designs, etc, Clarkson Hellas added.
Clarkson said, "So much design work has been carried out in the last year. If owners gain confidence on the latest 'Eco Design', it may spur further ordering across the sectors."
Meanwhile, in a separate report from Golden Destiny, it stated that there were just 10 orders reported this week, down by 52% from the past week.
China's Shanhaiguan Shipbuilding Industry contracted for two 76,000-dwt bulkers from a domestic owner and Yangfan booked for six 39,500-dwt bulkers from d'Amico, while Japan's Universal Shipbuilding inked an order for one 318,000-dwt VLCC from Kyoei.
Meanwhile, the demolition market has seen an active scrapping, while demolition prices have a decreasing trend. Over a recent week, a total of 21 vessels were reported demolished, 5% higher than the previous week.
The unstable eurozone climate, coupled with oversupply issues in the dry bulk and tanker markets, as well as a lack of financing continue to impact new building ordering activity. In its latest weekly report, Clarkson Hellas mentioned that “whilst there have been some further reports of new business being concluded this week, the newbuilding market has been a little bit subdued, both in terms of the number of firm orders placed as well new enquiries being seen in the market. As has perhaps been the case in the past, this is not surprising given the close proximity to Posidonia - and will be interesting to note what announcements of pending discussions are announced over the next 10 days.
The recent uncertainty surrounding the political climate in Europe has not perhaps had the most positive effect in the global financial markets – it remains to be seen whether this will have a knock on effect, through the availability of financial liquidity and whether in turn, this has a further disparaging effect on buying sentiment from the Western Markets. As always though and in spite of these challenges, Posidonia will give both owners and yards a good chance to discuss recent developments in the market, such as the major efficiency enhancements that have been made to many of the designs. With so much design work having been carried out in the last year, it will be interesting to see whether we are close to reaching the peak of performance for this latest generation of eco designs. If so, it may well spur further ordering across the sectors, as the buying markets gain confidence that new ships ordered today will remain competitive moving onwards into the future.
In terms of reported business; In Wet, Kyoei Tanker Co. are reported to have placed an order at Universal Shipyard for 1 x 318,000dwt VLCC. Whilst pricing remains unknown the vessel is understood to be due to deliver in Feb 2014 and will be built from their Ariake facility” concluded Clarksons Hellas.
In a separate report, Piraeus-based shipbroker Golden Destiny stated that there were just 10 orders reported this week, which represent a 52% decrease from the past week. “The orders were in the bulkcarriers sector and on the car-carrier sector. The total invested capital is calculated to be in the region of usd $ 267.8 mil, while the 2 panamax orders from Shenhua Zhonghai have been reported on private terms.
The bulkcarriers sector is the sector on which most Chinese yards depended their existence and performance, and that is one of the reasons why the Chinese shipbuilding industry is also facing issues on their orderbook, or even better on the lack of business they have. All 8 units were ordered at Chinese yards, 2 of them from Chinese investors and 6 from Italians. 2012 has proved to be a very difficult year for the newbuilding industries of all the countries. According to Fairplay, orders for Japan have presented a 3year low since the beginning of the year.
The car-carrier sector has shown activity since the beginning of the year, with 5 orders to have been placed so far. This week Eukor Car Carriers of South Korea has placed an order for 2 units of 6500car capacity at Hyundai Heavy Industry at a reported cost of $ 67 mil for each vessel, with holding option for two more” said Golden Destiny.
It carried on by mentioning that “lastly, although no fresh orders have been revealed in the tanker sector, Sovcomflot seems to have cancelled 2 contracts of aframax vessels at domestic shipyards. According to market sources, the vessels were part of a series of up to 12 vessels ordered back in 2010 in a joint venture between Daewoo of Korea and United Shipbuilding Corp of Russia” it said.
Finally in the demolition market, Golden Destiny said that “scrapping activity continues to be strong while demolition prices have a decreasing trend. In total the week ended with 21 vessels reported for demolition, 5% higher than last week, while in terms of deadweight the figure this week is 30% less. The activity is at almost similar levels with the relevant period of last year, when 17 vessels were reported for demo of a total of 1,221,749 tons deadweight. Most activity was in Bangladesh and India, although for the majority of the reported demolition deals no information were disclosed, therefore 49% refers to deadweight that went to undisclosed destinations. It is worth noting that in the container sector; so far the capacity scrapped has reached 124,000teu, while Alphaliner reports that the total containership capacity to be scrapped for the whole year is forecasted to exceed 200,000teau” it concluded.
New shipbuilding orders fell 48.7 percent year on year to 5.59 million deadweight tonnes (DWT) during the first three months, according to a report released by the National Development and Reform Commission (NDRC), China's top economic planner.
Ship owners around the world tend not to expand their fleets when global demand for goods and services remains sluggish.
For China's shipbuilders, completed shipbuilding volume also fell 22.5 percent year on year to 11.21 million DWT in the first quarter, with incomplete orders declining 25.3 percent year on year to 141.94 million DWT by the end of March, according to NDRC data.
Due to slack external demand, ships delivered overseas tumbled 22.3 percent annually to 9.47 million DWT, with the export shipment falling 8.3 percent annually to 64.3 billion yuan.
The NDRC said severe challenges for the country's shipbuilding industry loom ahead, as insufficient external demand, shrinking orders and increasing defaults on contracts will continue to squeeze the sector's profitability.
Global investment in newbuilding commercial ship is expected to be around 19.8m cgt in 2012, down by 37% year-on-year, but it may jump by 47% y-o-y to 29.2m cgt next year.
Analyst Jun Jae-Chun, Daishin Securities of South Korea explained on May 23, "Ship financing will hit bottom in H1 this year and be recovered next year, along with improved rates. Also, overly booked newbuilding commercial ships during 2006-2008 will be all delivered by next year."
Therefore, Big3 shipbuilders are to gain new orders next year. Jun forecast that if Greek crisis is settled, oil price will remain high and the market will see increased orders for commercial ship, particularly boxship and tanker.
Hyundai HI, Samsung HI and DSME would win $15.1bn on average next year, up 12% from $13.5bn in 2012, he forecast.
Jun prospected, "Greece won't face the worst and leave Eurozone. Then, West Texas Intermediate (WTI) crude oil prices will remain over $90 and South Korea shipbuilders can win new orders as expected."
Around $35.9bn, up by 2% year-on-year, will be invested in LNG carrier, deep-sea drilling rig (drillship/semi-submersible rig), offshore production facilities, etc., in 2013.
In case of LNG carrier, 2012 will see 38 newbuildings contracted, down by 27% in numerical terms y-o-y, while next year will see 43 vessels contracted. The US' LNG export is expected to boost up orders for newbuilding LNG carriers.
Moreover, when investment in merchant ship grows in 2013, Hyundai Mipo Dockyard, STX Offshore & Shipbuilding, and Hanjin Heavy Industries & Construction are likely to be the largest beneficiaries. These three yards' combined estimated order intake for this year would total $7.5bn (stand-alone basis, but Hanjin inculdes Subic yard). Their 2013's total order is estimated to be $9.3bn, up by 24%.
Meanwhile, considering that newbuilding price usually grows after seeing a new order rally with six-month interval in between, ship price would steadily rise after hitting the bottom in H1 2013.
Clarksons has questioned the merits of a spate of ordering in the products tanker sector this year.
The world’s largest shipbroker says optimism in the sector has become common place with supply and demand growth expected to align for the first time in half a decade this year.
But it insists the decision to order products tanker newbuildings is not as straightforward as recent activity suggests.
In its latest oil & tanker trades outlook Clarksons explains a rapid increase in US exports is aiding the market and is expected to benefit medium range tankers further.
“In particular, trade volumes on routes from the US to Mexico and South America are projected to increase by 24% year-on-year in 2012 to 1.8m bpd,” Clarksons said.
“This will generate increased demand for MR tankers, and may encourage investors to order MRs in the near future.”
It notes however that the Atlantic trader is likely to be hindered by a recession in Europe while the MR orderbook up until 2015 is the largest in the sector.
Coated long range tankers are also being looked at given the rise in US exports this year and the impact of refinery closures.
“However, the LR fleet may be bolstered by uncoated tankers competing for dirty products. Thus, owners who invest in LRs risk seeing potential trade volumes decline as uncoated vessels take market share,” Clarksons said.
As a result Clarksons warns opportunities in the products tanker market are more complex that previously considered.
“While product tanker demand as a whole is likely to increase in 2012 and 2013, whether and what owners should order remains difficult to judge,” it said.
"Increasing US product exports may increase MR demand going south, or transatlantic, while US East Coast import requirements may eventually stimulate LR demand.
“However, in both cases, there may be ways for the existing fleet to accommodate some of the extra demand. What, and when, to order, is as difficult a choice as ever.”
Decrease in global newbuilding orders continued in April as well, and newbuilding price kept its downtrend.
According to Clarkson Research Services' monthly report on May 15, there were orders for 51 vessels of a cumulative 1.8m dwt placed in April, down by over 30% month on month.
In April, an estimated total of $3.8bn was invested in new contracts, which brings the total estimated amount invested during the first four months of 2012 to $18.5bn, down by 45% on an annualized basis compared to 2011.
Only 277 new vessels of a cumulative 12m dwt, 5.2m cgt have been contracted so far this year, the lowest total on Clarkson records in the period. This compares with 622 newbuilding orders during the first four months in 2011.
During the same period, South Korean shipyards contracted 81 vessels of a cumulative 5.3m dwt or 2.5m cgt ($10.6bn), while Chinese shipbuilders booked orders for 87 vessels of a cumulative 3.9m dwt or 1.2m cgt ($2.3bn).
As of the end of April, Clarkson Newbuilding Price Index stood at 134.2p, down by 1.1p on previous month. Containership benchmark newbuilding prices drove overall newbuilding price to drop, having seen only seven orders placed in the first four months.
On the contrary, the benchmark price for MR product carriers rose by $0.5m to $34m month-on-month.
Meanwhile, in April, 140 vessels of a combined 11.3m dwt were delivered. The total number of deliveries during January-April period stood at 807 vessels of a cumulative 56.8m dwt, the largest ever amount of tonnage delivered in dwt terms, and up by 1.6% year-on-year.
During the first four months, a total of 428 bulkers, 112 offshore-related vessels ( including four drillships), 104 tankers, 67 boxships, etc., have been delivered.
Korea delivered 195 newbuildings of a combined 21.2m dwt, while China did 332 vessels of a cumulative 21.9m dwt (bulkers accounted for 78%).
The global orderbook stood at 5,553 vessels of a combined of 327.6m dwt at the end of April.
Bulkers accounted for 57% of total orderbook in deadweight terms. Panamax bulker backlog has the largest proportion on existing fleet, 70% in terms of dwt, down from 93% at the end of last year. Only the ratio of MR tanker experienced an increase from 14% to 14.9%.
With the backlog shrinking and newbuilding prices in depression, many shipyards in the world will face serious management crisis in 2012.
According to Clarksons, Chinese shipyards' overall orderbook is 146m dwt (43%), while South Korea has 98m dwt (29%) and Japan 61m dwt (18%). Many shipyards are under pressure to win additional newbuildings due to dwindling forward workload.
During the great boom in 2008, the orderbook as a percentage of deliveries reached 570%, shipyards having had almost six years of work in hand. However, the ratio dropped to 294% in January 2011 and to 209% in March 2012. In the bad economic times of 1999, the ratio fell to as low as 193%.
Overall, shipyards now secure about two-year workload, however, many small-and-medium size shipyards are close to see the bottom.
Meanwhile, recent statistics suggest that the downward spiral is likely continue, as the ratio of contracts to deliveries has fallen to a new low.
Normally, this ratio should be 100%, contracts being equal to deliveries. Between 1998 and 2002, the ratio averaged 113%, then, during the boom, from 2003 to 2007, the ratio climbed to 350%. But, since 2009 the ratio has averaged just 46%, and in 2012, it plunged to 22%, Clarksons reveals.
At a regional level, contracting in Korea and China stood at about half the level of deliveries in 2011, while in Japan, contracts were only about 20% of deliveries.
Yards are taking action to survive from lack of orderings. For instance, yards diversify into intensive markets, such as LNG and offshore, or adjust schedules, etc. However, less competitive small-and-medium yards are facing crisis of falling behind.
If the present trends continue, the orderbook will soon fall to the lowest percentage of deliveries since the 1980s. Some shipyards, getting dangerously close to the cliff edge, would be better to come up with survival strategies.
Since global financial crisis in the second half of 2008, it turns out that Greek owners have massively purchased second-hand vessels whenever there has been crisis in the air.
As Greek owners, who are known able to analyze shipping and shipbuilding market fast and accurate, can take advantage of market volatility, shipbuilding market recovery seems not so far away.
Shipbuilding/Shipping analyst Lee Sok-Je stated that Greece bought second-hand vessels in the most aggressively during Eurozone debt crisis in the second half last year.
In October 2011, overall 38 trading in second-hand market, of which 32 vessels were purchased by Greek owners.
Since Lehman Shock occurred four years ago, Greek owners accounted for 30-52.8% of second-hand purchase in H1 2009 and 64.7% in June 2010 after Greek debt crisis.
Also, Greece's purchase soared to 84.2% and 61.1% in October and November 2011 each, when Eurozone crisis threatened the financial market again in the second half last year.
Analyst Lee pointed out, "Just by a reason of Eurozone crisis, ships are possibly sold at a giveaway price to Greek owners. Look out carefully and not be disturbed by trend."
He emphasized that current situations should be thoroughly checked, including soaring demand for offshore facilities, appearances of short-supply ship types, smaller yards' facing insolvency, etc.
Seeing Greek owners, who have been aggressively raking in secondhand vessels, in these current global situations, shipbuilding industries would preferably work harder to raise newbuilding price.
Recent surge in MR product tanker newbuilding orders could harm weak market recovery, warns US-based consultancy McQuilling Services.
“Based on the current delivery profile and looming surplus, we believe these orders may be premature and earnings could suffer,” McQuilling said in a report on Thursday.
The warning follows forecasts at tanker conferences this year that product tankers will recover more quickly than other shipping segments as fewer orders had been placed over the last few years.
That delicate recovery now appears to be in the balance, given owners’ current enthusiasm for ordering new product tankers.
Data from Clarksons show that 35 contracts for new MR tankers in the size range 30,000 dwt-59,999 dwt were signed by the end of April, up from five contracts signed for new vessels of that size in that period last year.
However, McQuilling does not believe there has been a robust enough change in the market to justify the ordering spree.
“Lacking any significant improvement in demand fundamentals in the clean product trades, we were surprised by the surge in MR2 newbuilding contracts,” said the report.
As expected with holidays around the world, like Golden Week and National Holidays in both Japan and across the world this week, the newbuilding market has remained a little subdued this past week. In its latest report, Clarkson Hellas noted that “that is not to say however that there has been a complete dearth of activity, with reports surfacing of further ordering in the Gas and Dry bulk sectors. This further ordering in the Gas market is perhaps not a surprise given what has become a familiar story over the past year and these latest orders in the Dry Bulk market reflect owners increasing willingness to consider placing orders where the latest design developments mesh more comfortably with the current market price levels” said Clarkson Hellas.
It continued by saying that “one sector however that has not yet reflected the ordering of last year remains the container market, wherein there have been only limited reports of new business having been concluded thus far this year. We understand though that several volume container projects are currently under discussion both in Korea and China and that the yards here are all competing fiercely to win what business is available. It is felt that this competition is leading to a continued softening in pricing and that the competition itself is being further exacerbated by the still somewhat limited demand in the other conventional sectors. As with other sectors though, the Yards have been continually working hard on the technical innovation of their container designs and importantly in reducing the consumption of the Vessels in this time of very high bunker pricing. Typically, these enhancements are leading to the designs being developed today now offering significant savings even against the vessels ordered post-crash last year and as such feel the container market will be one to watch over the coming weeks where we expect ordering will begin afresh to take advantage of this” concluded Clarkson Hellas.
In a separate report, Golden Destiny mentioned that “the newbuilding market has shown a 67% increase compared to last week, with the tanker sector driving the activity and presenting a w-o-w increase of 225%. The action focused on the MR segment with Sea Tankers of Cyprus and Tanker Pacific Management of Singapore ordering 4 units with options two plus two each. Overall, the week closed with 40 orders reported worldwide at a total deadweight of 841,740 tons. The total invested capital from the contracts with reveal data is about $ 1.14bil, while again around 75% of the newbuilding business has been reported on private terms. In the bulkcarrier sector 3 orders were reported, with one (option one more) being from Greek interests of a “flexible bulker design” of 66,000dwt. Densay Shipping of Turkey is rumored to have ordered two 82,000dwt vessels from Jinling Shipyard in China, however the owners of the company deny it, while confirm that the deal is at the LOI signing stage” it mentioned.
It went on to say that “in the container market, fresh orders haven’t been reported; although there are discussions that Seaspan is expected to sign a LOI for 18 ships of 10,000teu. These orders will be options that were attached to Seaspan’s order of June 2011 for 7 such vessels of a value of $ 700mil. Additionally, Avin International from Greece is said to be entering the container sector with two 1700teu vessels from China’S Zhejiang Ouhua Shipbuilding at a reported price of $ 50 mil enbloc, while the order is thought to include also options for two additional units. What also drew industry’s attention was that CSCL (China Shipping Container Line) announced that it will not be taking options for 4 10,000teu vessels, the initial order of which was made in October last year at $ 94 mil each that were ordered at Dalian Shipbuilding and Hudong Zhonghua” Golden Destiny stated.
Meanwhile, in the demolition market, the Piraeus-based shipbroker noted that “the scrapping business continues to be on the high side, with the week ending with 25 vessels of a total deadweight of 1,032,443tons. The vessels sent to the scrapyards have been almost from all vessel types, with almost all markets being active. India attracted most business, while Pakistan and Bangladesh followed. In terms of scrap rates, for the wet sector th rates are in xs of $ 500, while for the dry side in the region of high $ 400/ldt, even $ 500/ldt depending on the vessel, the destination and the terms of business” it concluded.