Shipyards eye rebound in new orders

PUBLISHED : Monday, 08 February, 2010, 12:00am
UPDATED : Monday, 08 February, 2010, 12:00am

Mainland shipyards, where new orders dropped more than 50 per cent last year, are expecting a substantial rebound in new building contracts this year as the shipping industry recovers, according to a senior official at China State Shipbuilding Corp (CSSC).

'Shipowners have become more active in negotiations for new vessels,' Yu Baoshan, an assistant to the president at CSSC, China's largest shipbuilding company.

Yu, also the president of Guangzhou Corporation of Shipbuilding Industry, a subsidiary of CSSC, said the shipyard's order book would be better than last year, given that the global economy is slowly recovering.

Officials from CSSC said they are in talks with shipowners over various vessel types, except container ships, but declined to provide a figure for the number of contracts being negotiated.

The plunge in shipping freight rates as well as credit tightening beginning in the fourth quarter of 2008 reduced new ship orders across the globe.

China, the biggest shipbuilding country in terms of new orders, saw orders shrink 55 per cent year on year to 26 million deadweight tonnes last year, accounting for 61 per cent of new orders worldwide.

Many shipyards did not receive any new orders until the last quarter of last year.

For example, CSSC Guangzhou Longxue Shipbuilding, which is 60 per cent owned by CSSC, had not received any new ship orders for more than 12 months when one came for an 80,000 deadweight-tonne bulk vessel in November, ending the drought.

The shipyard, which started operating in 2008, received only two orders for 80,000 dwt vessels last year, compared with 20 outstanding orders on its book.

The drop in vessel prices is also luring shipowners back to the negotiating table, a broker from a British shipping agency said.

'Prices of various vessels have fallen 40 per cent off their peak in 2007 and early 2008,' the agent said. Traditional shipowners, mainly from Greece and other European countries, have returned to the market, placing orders with Chinese and Korean shipyards, he said.

Not all vessel types, however, will benefit from the recovery.

Demand for Panamax vessels, used mainly to transport coal, and tankers will recover better than for container vessels, said Jack Xu, a transport analyst at SinoPac Securities.

'There will be a pickup in tanker demand this year because of the potential increment in oil production announced by Opec,' Xu said.

Meanwhile, the buoyant demand for imported coal on the mainland due to increased power production and cheaper international coal prices will also shore up the demand for Panamax vessels this year, he added.

However, the demand for container vessels will continue to be plagued by overcapacity.

Container ships lying idle at ports all over the world constitute 10 per cent of the existing global fleet size.

New vessel orders are also spurred indirectly by steel mills and power plants on mainland.

CSB Fortune, a very large iron ore carrier (VLOC) delivered to China Shipping Development on Saturday has entered into a contract lasting 15 years with Beijing Shougang.

By forming a strategic alliance with consumers, shipping companies such as China Shipping Development can secure enough shipments for the new vessels and reduce the risks.

The shipping company has ordered 16 VLOCs, four of which will be delivered this year.

Qian Kai, the managing director of Beijing Shougang, one of the biggest steel manufacturers on the mainland, said his company was keen to lock up its transport costs by signing such long-term contracts with shipping companies.

'In the longer run, we would like to lock up 70 per cent of the shipment of iron ore with long-term contracts,' Qian said.

The mainland, the largest consumer and producer of steel in the world, imported 610 million tonnes of iron ore last year.