Order cancellations unlikely to weigh on anchor chain maker

PUBLISHED : Wednesday, 23 September, 2009, 12:00am
UPDATED : Wednesday, 23 September, 2009, 12:00am

The anchor chains made every year by Jiangsu-based Asian Star Anchor Chain would easily stretch 3,500 kilometres, or all the way from Shanghai to Urumqi.

About seven of every 10 vessels of 10,000 tonnes or above sailing across the globe are equipped with a pair of anchor chains produced by Asian Star.

Just like thousands of other companies in the shipbuilding industry, the fate of Asian Star is closely tied with that of the mainland's struggling shipyards. The ripple effect may take two to three years to reach the equipment manufacturers but there is little doubt it will arrive.

When the mainland shipbuilding industry started to take off in the late 1990s, ship equipment suppliers also experienced substantial growth. The mainland ship ancillary industry pocketed 32.8 billion yuan (HK$37.2 billion) in sales last year, up 80 per cent from a year earlier.

Asian Star's production lines are still operating at full strength with three shifts a day. Chairman Tao Anxiang said that without some cancelled orders, they would not be able to finish all the work scheduled for the year even operating at maximum capacity.

'The isolated cancellation of orders does not scare me now and has actually helped us to release overstretched production lines,' he said.

Tao said shipyards would be more badly affected by the industry downturn. 'We will not be hard hit unless ship orders continue to fall in 2011 to 2013,' he said. But he said the company had already seen a change in market sentiment when negotiating new orders with shipyards.

'The South Korean shipyards, for example, used to sign the contracts before going into the details of technology specifications,' said William Lu, a sales manager at Asian Star. 'But now, even when we have gone through the technical agreement, the contract is shelved at the last minute.'

With about 70 per cent of its 2.5 billion yuan in sales last year coming from the shipbuilding industry and the remainder from the ocean engineering industry, Tao said the company would increase its engineering work to mitigate the negative impact of the shipping industry downturn.

The firm also planned to boost orders at its ship-repair dockyard, which had been neglected because of robust demand from the shipyards, he said.

Zhongnan Heavy Industries, a pipe fitting manufacturer based in Jiangjin, Jiangsu province, also said it would reduce reliance on the shipbuilding industry.

Zhongnan Heavy, which had more than 500 billion yuan of sales last year, said it had increased the proportion of revenue from the oil piping business to almost 40 per cent this year, equivalent to the contribution from shipbuilding.

In the past, shipbuilding orders accounted for more than 50 per cent of its total sales.

'Shipyards could provide a long-term and stable income stream to us,' said Jin Yanping, a sales director of Zhongnan Heavy. 'We are still having high hopes that the shipyards could overcome the crisis by diversifying their business to high-value products such as LNG (liquified natural gas) vessels, tanker and oil engineering.'