Shipyards sail into rough seas as new orders dry up

PUBLISHED : Tuesday, 01 November, 2011, 12:00am
UPDATED : Tuesday, 01 November, 2011, 12:00am


Small and medium Chinese shipyards are starting to halt production because of shrinking order books, while many mainland shipbuilders' losses are growing, according to China's National Development Reform Commission (NDRC).

'In September our nation's shipbuilding industry only received 940,000 deadweight tonnes (dwt) of orders, the lowest since June 2006,' the national economic planning agency said on its website.

'As of September 30, 30 per cent of shipyards in the entire country have not received orders. In the first half of next year, some shipbuilding companies may not be able to start operations.'

For the first nine months of this year, new orders from mainland shipyards plunged 42.8 per cent year on year to 29 million dwt, it said. A glut in China's shipping overcapacity is being exacerbated by a recent 67.2 per cent jump to 7.86 million tonnes of completed ships in September from August.

In the fourth quarter, new orders for mainland shipbuilders would remain low and orders on hand would suffer an accelerated decline, the China Association of the National Shipbuilding Industry predicted.

In the first eight months of this year, there were 249 loss-making Chinese shipbuilding companies with a total accumulated loss of 2.7 billion yuan (HK$3.2 billion), up 37.9 per cent from 2010, including 114 shipbuilders whose losses were 110 per cent bigger than last year, NDRC said.

According to Worldyards data on the larger Chinese shipyards, the percentage of built ships that have received firm orders from customers fell from 98.3 per cent in the peak year of 2008 to 70.9 per cent this year, and this is projected to fall to 68 per cent in 2012 and 28.4 per cent in 2013.

The difficulties faced by the nation's shipbuilding industry are a sign that local governments are now more selective in supporting shipyards, said Matthew Flynn, managing director of Worldyards, a Hong Kong shipbuilding consultancy.

'Now overseas customers are getting selective about shipyards,' Flynn said. 'Chinese shipyards have to deliver high quality. The issue is, can Chinese shipyards address quality concerns?'

A Nomura Group analyst said the outlook for the sector was grim.

'We're looking for global container shipping to be loss-making in 2011 and 2012,' the analyst said, adding that any shipping downturn in 2011-12 would not be as severe as the decline during the 2008-09 global financial crisis.

For example, China Shipping Container Lines, a Hong Kong-listed container shipping company, suffered a net loss of 6.5 billion yuan in 2009, but Nomura forecast a smaller net loss of 2.6 billion yuan this year and 2.3 billion yuan next year.

Likewise, Orient Overseas International, another Hong Kong-listed shipping firm, suffered a net loss of US$400 million in 2009, but Nomura predicts the family firm of former Hong Kong chief executive Tung Chee-hwa will be profitable this year and post a smaller net loss next year.

Separately, Shanghai International Port Group (SIPG), Shanghai's port operator, has applied to issue 1.4 billion yuan of 270-day bonds, of which half will be used to repay loans and the other half as working capital.

The Shanghai-listed firm's short-term loans nearly tripled from 2.19 billion yuan at the end of last year to 6.14 billion yuan in the middle of this year, SIPG's bond prospectus said.

'Although the recovery of the world's ports in 2010 enabled the company's debt repayment ability to gradually recover, its large debt level has resulted in financial cost pressure,' SIPG said.