Ship plant planned for Pearl River
GUANGZHOU Shipyard International wants to establish a build and repair plant at the Pearl River estuary for large vessels under China's ninth five-year plan through the next five years.
Chairman Ren Fuwei said the new plant would enable the company to build and repair ships of more than 200,000 dwt (dead weight tonnes), compared with its existing capacity of only 40,000 dwt at the shipyards in Guangzhou because of geographical restrictions.
'Shipbuilding and ship repairing are our strengths, and the repairing business usually has a generous gross profit margin of more than 30 per cent,' he said.
Mr Ren, who has just relinquished the position as general manager, declined to say how much the project would cost.
He said the plan was subject to approvals from its parent China State Shipbuilding Corp and the State Planning Commission.
Guangzhou Shipyard is conducting a feasibility study which is expected to be completed at the year's end.
'We have made some proposals for the project, including sole investment by the company itself, joint venture, bank borrowings and equity financing,' Mr Ren said.
WI Carr (Far East) analyst Brian Leung cast doubts on the efficiency of the proposed plant, in view of the cut-throat competition for ships above 50,000 dwt in the international market, especially from Korean and Japanese ship manufacturers which had suppressed prices for a bigger market share.
'Unless the plant is guaranteed by a substantial amount of orders, I will doubt its efficiency,' Mr Leung said.
He said the company could improve efficiency by enhancing the utilisation rate of its three shipyards in Guangzhou, with the smallest one now serving as a warehouse due to insufficient orders.
Mr Ren expected its shipbuilding business would fare better in the second half of the year on a stable yuan and improved efficiency due to better weather.
Profits of the container manufacturing division would remain squeezed.
In the first half, prices of steel from Japan for making containers rose US$40 a tonne, or up 13 to 15 per cent, from the end of last year.
The steel had added another $50 a tonne since July 1, making a full-year increase of about 30 per cent, said Mr Ren.
He expected the company to manufacture 40,000 teus (20-foot equivalent units) this year.
According to SBC Warburg, steel accounted for 60 per cent of the company cost of sales.
Guangzhou Shipyard has announced a 66 per cent plunge in interim profits to 48.39 million yuan, hit by the rising yuan, increasing steel cost for container manufacturing and an absence of exceptional items of foreign exchange gains.
In the first half, 90 per cent of its turnover was from exports, so it was vulnerable to the appreciation of the yuan against the US dollar.