Heavy seas for shipyards amid economy woes

Updated: 2012-02-06 20:08

By Zhou Siyu and Wang Ying (chindaily.com.cn)

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BEIJING/SHANGHAI - The approach of spring hasn't brought good tidings for Chinese shipyards, which continue to struggle as a sluggish world economy, a glut of vessels and surging fuel prices hurt shipping demand.

Some small Chinese shipyards, short of new orders, are on the brink of bankruptcy.

"We haven't received any orders since last year," said Liu Min, a senior director at Zhejiang Jingang Shipbuilding Co Ltd, which is based in the city of Taizhou in Zhejiang province.

The company started operations in 2006 with a capacity of 500,000 deadweight tons. But under pressure from difficult market conditions, it produced only 150,000 tons last year.

"Our orders in hand will be finished in July. Then we have no work to do," said Liu.

Yang Zhonghua, executive deputy general manager of another shipyard in Zhejiang province, had a similar story to tell.

Rising costs for materials and labor, amid dull market conditions, have worsened the situation for small shipping companies and shipyards, Yang said.

Some Zhejiang-based shipping companies have suspended business and dismissed their employees, he added.

Facing bankruptcy, "we have considered investing in other businesses. But that means all the money we put into equipment and facilities will be wasted", said Liu.

Industry losses are widespread. According to the China Association of the National Shipbuilding Industry (CANSI), the volume of new orders in 2011 fell 52 percent.

More than 30 percent of the country's small shipyards are likely to go bankrupt this year, industry insiders said.

Freight rates are also depressed. The Baltic Dry Index, a measure of commodity shipping costs, dropped to 651 on Feb 2, the lowest reading since Aug 27, 1986, according to the Baltic Exchange. The last time the industry saw such a dip was during the 2008 global downturn.

But these developments don't mean the shipbuilding industry will founder as a whole, thanks to a high level of rationalization, analysts said.

Small shipyards, though many in number, accounted for no more than 20 percent of the country's vessel production, said Zhang Guangqin, head of CANSI.

"This year will be very difficult for the industry. But the large shipbuilders are unlikely to be affected to the point of going bankrupt," he said.

The large State-owned companies have had some difficulty in getting new orders. "We have seen a considerable decline in new orders since last year," said Wang Liang, director of the production and management department at China Shipbuilding Industry Corp, a major shipbuilding conglomerate.

But according to Wang, the declining new orders were those for basic, mainstream vessels. "Demand for more sophisticated ships remains buoyant," he said.

With technological advantages, "we have confidence in competing for orders (of more sophisticated vessels) in the international market", Wang added.