Economy

Markets

Industries

Insights

Reports

Events

Shipbuilders facing choppy seas

By Ding Qingfen (China Daily)
Updated: 2009-07-30 08:00

Ships being built at a shipyard in Wuwei county, Anhui province. Chinese shipbuilders are witnessing falling orders due to the effect of the global economic slowdown. [China Daily]

For Chinese shipbuilders, this is probably the worst of times -- and the hardest period has yet to come. Major ship owners, both domestic and foreign, are expected to go slow on new orders during the next one-and-a-half year as they wait for the global economy to recover.

Industry insiders and analysts said the Chinese shipbuilding industry, the largest worldwide, would face its real test a few months from now, when a slew of small- and medium-scale ship builders start to stop production or close down factories, and large builders lay off workers and cut salaries.

Ship owners usually order vessels three years before they are put to use. So, the financial crisis, which erupted late last year, actually exerted less of a negative impact on the shipbuilding industry. In fact, the shipping sector was hit more by the slide in foreign trade.

Despite a big contraction in new orders and cancellation of earlier orders by international ship owners, Chinese shipbuilders have been working on old orders, and the medium and small players have been limping along due to financial support from the local government.

But, as the prospects for the global economy are still looking bleak, shippers are reluctant to book new orders; and shipbuilders are starting to get more and more anxious.

"We haven't signed any new deals since late last year, but this is not the worst part. It's hard to predict when the industry would show any positive sign of recovery," said Hu Keyi, a senior executive and chief engineer at Shanghai Jiangnan Shipyard, one of the nation's largest shipbuilders.

Related readings:  Shipbuilding industry faces credit crunch Shipbuilding fund confident of target  Shipbuilding stimulus plan made public   Shipbuilder Rongsheng plans $2b share offer in Hong Kong

Existing orders could help Jiangnan Shipyard limp through to the first half of 2011, but there will be trouble if "we still cannot get any new deals by end of this year", he said.

Hu, and his industry counterparts, have been running around seeking new deals.

Even though the Chinese economy is poised on the cusp of a recovery, global trade is in the doldrums, and is expected to fall by 10 percent this year, according to the WTO.

"The most optimistic thing about the shipping industry now is that it cannot get worse (than this)," said Sun Liping, a shipping analyst from Guotai Jun'an Securities.

There is no reason why "shippers or ship owners will massively book orders till the end of 2010" and "they will probably continue to cancel deals as they did in the first half of this year", Sun said.

Shanghai Waigaoqiao Shipbuilding, a leading industry player, has not fared any better. "Nobody can understand how we feel at this time; we don't see any glimmer of hope looking into the near future, say, one or two years," said Tao Ying, chief engineer from Waigaoqiao Shipbuilding.

Waigaoqiao has not received any new orders since September 2008, and if the trend continues until early next year, the company would probably start firing workers and chopping salaries, said Tao.

This year, China overtook South Korea as the largest shipbuilder, but now the nation is staring at overcapacity as a slew of investors aggressively entered the sector during the past few years to cash in on the rapidly growing global trade.

A spokesperson from the Ministry of Industry and Information Technology said the overcapacity in the shipbuilding industry was acute. Ships that transport commodities, around one-fourths of the capacity, are being left unused, he said.

Statistics from Clarkson, the world's largest shipping research institute, showed that new orders into China from January to June were 1.9 million tons, 600,000 tons higher than South Korea's. However, from September 2008 to June this year, new orders only accounted for between 1 and 2 percent of orders during the same period the previous year, it estimated.

Compared with leading industry players, hundreds of smaller shipbuilders are likely to face a bigger blow. "Many private and small-scale companies would have closed down by late 2008 if the provincial governments had not offered them a hand in order to buoy their local economies," said Tao.

But the help cannot last for long, as "they are doomed to die when there are no new orders," he said.

Bigger shipbuilders like Jiangnan and Waigaoqiao are now focusing on improving quality to avoid order cancellations and trying to win over niche markets that are less immune to an economic slowdown.

Jiangnan Shipyard has shifted its focus to value-added ships and ships for special use such as offshore engineering carriers.

This year, a batch of companies turned to building carriers for special use, including liquefied gas carriers and offshore engineering carriers, said industry insiders.