Mainland shipyard orders sink 91pc

PUBLISHED : Saturday, 11 April, 2009, 12:00am
UPDATED : Saturday, 11 April, 2009, 12:00am

New orders at mainland shipyards plunged 91 per cent in the first two months of the year, with growing cancellations from shipping lines adding to the gloomy prospects for the battered industry.

With the Baltic Dry Index, a measure of freight rates on different bulk vessels, losing 98 per cent of its value from its peak by the end of last year, demand for new vessels has collapsed. Globally, new orders for ships plunged 97 per cent year on year in the period.

Mainland shipyards have been aggressively expanding their capacity over the past few years, with China overtaking Japan as the second-largest shipbuilding nation two years ago.

The downturn in demand for ships had been rapid.

In the first two months, mainland shipyards received 13 cancelled orders, translating to 664,000 deadweight tonnes and equivalent to new orders signed by shipyards in the same period, a survey by the China Association of the National Shipbuilding Industry showed yesterday. Two of the cancelled vessels were scheduled to be delivered this year, six of them next year and five in 2011. Most were bulk vessels with some container ships.

'It is just a prelude of things to come,' said one shipping analyst. 'Major shipping lines are choosing to delay instead of cancelling orders now. But when more new vessels come on stream and more new ships sit idle at ports around the globe, they will choose to cancel some orders.'

The percentage of container vessels being laid up would surge to 25 per cent of the global fleet by the end of the year from 11 per cent now, a HSBC shipbuilding report said.

Besides cancellations and delays, the shipyards are also encountering the problem of renegotiated contract terms as well as tougher delivery requirements from shipowners.

Lower contracted prices are being requested after a decline in steel prices and other raw materials.

Shipyards also are being peppered by requests from shipowners to change vessel specifications, a tactic used by embattled shipping lines to delay taking delivery of ships.

It is believed that new ship orders worldwide will fall below 3 million dwt in the first half, well below the 40 million dwt full-year target, according to the survey.

Profit at mainland shipyards remained intact in the first two months as the negative impact of the decline in new orders would not be felt for two to three years.

In the first two months, net profit at the 712 major shipyards surged 24 per cent year on year to 2.33 billion yuan (HK$2.64 billion).

Sales at the shipyards soared 54.6 per cent to 34.2 billion yuan on a 42 per cent increase in vessel completion.

Good start

Profit at major shipyards in the first two months surged 24 per cent to, in yuan: 2.3b yuan