The mainland's shipbuilding sector is set to consolidate as state-owned shipyards take over smaller privately owned operators in the face of overcapacity and a dearth of new orders, a senior Hong Kong banker said.
Pakco Lam, a senior manager with Bank of China (Hong Kong), said several mainland shipyards had gone bankrupt after new shipbuilding orders dried up in the wake of the slump in the shipping market that started in 2008.
He said other yards were also facing cash-flow problems as they completed existing orders with no new contracts beyond the next two years.
'There is an oversupply [of capacity] in Chinese shipyards. Smaller shipyards are facing bankruptcy,' he said. 'I think it (consolidation) will happen,' he told about 250 shipping executives at a conference in Singapore organised by the shipowners' lobby group, the Baltic and International Maritime Council.
Lam said merger and acquisition activities by state-owned shipbuilders would take place but added takeovers would depend on each shipyard's order book and the state-owned shipbuilders' cash flow.
There are two large state-owned shipbuilding groups: China State Shipbuilding controls a raft of individual shipbuilding and ship-repair companies south of Shanghai, while China Shipbuilding Industry controls yards in the north.
Lam echoed the views of other shipping experts, including Ong Choo Kiat, the president of Taiwan's U-Ming Marine Transport, and Sean Wang Shaojian, the chief financial officer at China Rongsheng Heavy Industries. Both have previously said that while shipyard overcapacity was a big problem, consolidation would ultimately take place.
Recent figures from the China Association of National Shipbuilding Industry show about a third of mainland shipyards failed to win a single order since January last year. The association said foreign and domestic shipowners cancelled orders for 22 ships totalling 1.2 million deadweight tonnes in the first two months of this year.
It also said a rising number of shipowners had either postponed delivery of ships, changed the type of vessels or altered the contract payment terms in the face of a slump in freight rates and uncertain cargo demand.
Pointing to the impact of these changes on shipyards, the association said 57 of the mainland's top yards and related companies reported a collective drop in revenue of 7.3 per cent to 33.6 billion yuan (HK$41.3 billion) in the first two months of this year. Net profit slumped 26.2 per cent to 1.9 billion yuan.
Guangzhou Shipyard International, part of China State Shipbuilding, warned two weeks ago that net profit for the first quarter would be 50 per cent less than the 174.89 million yuan clocked up in the first quarter of last year.