Cheap mainland rigmakers to shake up market

The mainland's shipbuilders are set to spark a price war in the oil-rig market.

With orders for new ships hitting an eight-year low last year, China Rongsheng Heavy Industries and its local rivals are moving into the offshore business, lured by a market that will reach about US$328 billion in 2017. The new entrants are lowering prices to grab contracts, hurting margins at Singapore-based Keppel and Sembcorp Marine, the world's two biggest rig makers.

"It's like moving from one bottomless pit to another," said Park Moo-hyun, an analyst at E-Trade Securities in Seoul. "Chinese shipyards are competitively trying to get into what they see as a lucrative business. But the consequence of that is they could end up distorting the whole market."

China Rongsheng, the nation's biggest yard outside state control, announced in October its first order to make a tender barge, and rival Yangzijiang Shipbuilding got its first rig contract last month. Shanghai-based China Rongsheng warned in December of a loss in 2012 after three years of profits.

Jinhai Heavy Industry, based in Zhejiang province, also secured its first offshore equipment contract last month.

"Whether or not the Chinese yards can earn money from the current orders is pretty much in the air," said Vincent Fernando, an analyst at Religare Capital Markets in Singapore. "There's a steep learning curve."