Business ebb beaches shipmakers

A 47,000-ton oil tanker made for an Indian company was launched from Nanjing Jinling Dockyard in Jiangsu province last month. Asianewsphoto

China's shipyards continue to scrape along with continuing declines in new business and growing risk of cancelled orders.

The industry began losing steam in the second half of 2008 and business in the first four months of this year also ebbed - new orders placed with 70 key shipyards in China decreased by 96 percent year-on-year to 640,000 deadweight tons (dwt), said a report issued by China Association of the National Shipbuilding Industry (CANSI) in May.

The report said order cancellations have spread to more yards. From January to April, 28 vessels totaling 1.15 million dwt were canceled, almost twice the number of new orders in the same period. In April, 12 vessels totaling 250,000 dwt were canceled in a single month.

"The gloomy situation will last for a long time," said Zhang Guangqin, president of CANSI. "Shipbuilding is closely related to global trade and the shipping industry. Currently I haven't seen many signs indicating recovery of the shipping industry. I guess shipbuilding will not recover until two to three years later."

China Shipbuilding Industry Corp (CSIC) and China State Shipbuilding Corp (CSSC), the two largest in the country, both confront difficulties in the hard times.

"Although our existing orders haven't been canceled, the status of new orders is very bad compared with the same period last year," said Zhu Xuesong, general office member of CSIC.

During the first four months, CSIC did not receive any orders for oil tankers, container ships or bulk cargo carriers, the three main types of vessels built at China's shipyards. The company only received orders for ocean engineering projects and ocean administration ships, Zhu told China Business Weekly.

"Shipbuilding is a long-lasting process and the impact from a decline in orders always lags. If such situation continues, production will be greatly affected in the future," she said.

The report by CANSI forecast that demand for oil tankers, container ships and bulk cargo carriers will remain very low during the next several months.

China CSSC Holdings Ltd, a listed company of CSSC, posted a 36.3 percent year-on-year net profit decline to 623 million yuan in its first quarter.

"Raw materials such as steel plate for the ships built in the first quarter were purchased at the beginning of 2008. At that time the price of materials was high and that is the main reason for the decline in profit," said an analyst with Ping'an Securities who declined to be named.

He estimated that the company's profit will not increase until the third quarter of this year.

He said growth in yearly profit for the company will reach about 20 percent in 2009, a sharp decline compared to 2008, when its net profit surged 48.63 percent over 2007.

The situation at private shipyards is no better than at State-owned enterprises. Among the vessels canceled during the first four months, two-thirds - or 50 percent of total tonnage - hit private companies, said CANSI President Zhang.

Liaoning Marine & Offshore Industrial Park Co Ltd, a leading private shipyard in the province, had nine vessels totaling 260,500 dwt canceled since 2008. The company has four vessels under construction that will be completed by the end of the year.

"We haven't received any new orders so far. It is our top priority to look for new orders in 2009," said Sun Jimin, general manager of the company.

Other shipyards are also searching for solutions. "CSIC is now putting more effort in developing non-shipbuilding businesses such as wind power, railway machinery and other sectors our technologies can be applied to," said Zhu.

Guangzhou Shipyard International Co Ltd (GSI), another listed company of CSSC, plans to increase the percentage of ships for ocean exploration and offshore oil production to 30 percent of the total ships it builds, because profit from such ships is higher, reported National Business Daily on May 16, citing an anonymous company insider.

GSI announced in March it will abandon plans to acquire the Wenchong shipyard in Guangzhou because of poor performance of the whole industry.

(China Daily 06/08/2009 page7)