Shipyards surge on state support

PUBLISHED : Friday, 13 February, 2009, 12:00am
UPDATED : Friday, 13 February, 2009, 12:00am

Shares of shipbuilders gained yesterday after the central government approved measures to support the struggling industry, including a three-year ban on expansion.

Guangzhou Shipyard International, the country's largest small-tanker builder, closed 10.51 per cent higher at HK$10.20 while its Shanghai-listed parent, China State Shipbuilding Corp, rose the 10 per cent trading limit to 58.48 yuan.

The State Council on Wednesday approved measures to provide subsidies to domestic vessel buyers, relax credits for ship exporters and ban new capacity at existing shipyards for three years.

'The expansion curb is unexpected and would help control new capacity in the medium to long term,' said Jack Xu, a Shanghai-based transport analyst at Sinopac Securities.

Like their rivals in South Korea and Japan, Chinese shipyards have barely received new orders since the fourth quarter as the global economic downturn dampened demand for vessels. New orders at shipyards on the mainland plunged 40.9 per cent last year to 58.18 million deadweight tonnes.

An executive at Guangzhou Shipyard said the company had not received any order so far this year because more than 70 per cent of its output was for the overseas market.

'I'm not sure if domestic demand could compensate for the decline in international orders,' he said.

Part of Beijing's stimulus plan is to boost domestic demand. The government has extended the financial aid to shipping companies on vessel acquisitions to 2012.

Last year, mainland shipyards completed vessels totalling 28.81 million deadweight tonnes, up 52.2 per cent from a year earlier and accounting for 29.5 per cent of global production.

Orders on hand rose 28.7 per cent to 204.6 million deadweight tonnes, or 37.7 per cent of the world's total outstanding orders, according to the China Shipbuilding Industry Association.

Although the outstanding orders should keep most mainland shipyards busy in the next three years, the industry is facing delays and cancellations from ailing shipowners.

Some observers estimated more than 10 million deadweight tonnes of orders held had been delayed or cancelled over the past year.

'As the impact of the stimulus plan would be felt over the long run, the rally of shipbuilder shares would be corrected in the near term,' said Mr Xu.

Demand dives

Last year, new orders at shipyards on the mainland plunged: 40.9%