Bloomberg News

China Shipbuilding Urges Domestic Vessel Orders to Avert Slump

May 16, 2012

China Shipbuilding Industry Corp., a state-controlled company with seven yards, said domestic vessel owners must renew their fleets to prevent new orders from slumping to a seven-year low.

A decline in overseas business, falling ship prices and rising labor costs are “severely challenging,” Han Guang, deputy head of the company’s Information Research Centre, said May 15 at the China Money & Ships Conference in London. Exports accounted for 82 percent of ships built and delivered last year, he said.

“Domestic shipowners need to increase and optimize fleet structure,” Han said. While the industry has “enormous room for further growth,” 30 percent of yards have received no new business since the end of 2010, he said.

Shipbuilding orders in China, the world leader, plunged 49 percent from a year earlier in the first quarter and are on track to fall as low as 20 million deadweight tons this year, less than a third of available capacity, Han said. That would be the lowest total since 2005 and compares with the high of 107.5 million tons in 2007, he said, adding that orders will be no higher than 30 million tons this year.

Greek shipowners, the biggest buyers, won’t sign contracts with Chinese yards because prices remain too high, said Haralambos Fafalios, chairman of the London-based Greek Shipping Co-operation Committee. The group represents vessel owners in the euro-area country. Yards must lower prices by a further 40 percent if they want to win business, according to Fafalios.

Unaffordable

“We’ve left the supercycle,” he said. “We can’t afford these ships.”

China’s exporting yards have cut prices to loss-making levels to win new business, said Ben Zhang, managing director of Accord Marine Services Ltd.

“To maintain a certain level of production, the ship yards are likely to accept a price just below their running costs,” he said at the conference.

The Chinese ship-construction industry expanded in value by an average of 33 percent a year since 2001, according to China Shipbuilding. Companies based in the country sold vessels worth 2 trillion yuan ($316 billion) between 2008 and 2011, Han said. Output was 181.3 billion yuan in this year’s first quarter.

China Shipbuilding has seven yards, Han said. The country’s share of vessels on order was 46 percent by capacity at the end of last year, according to figures from London-based Clarkson Plc (CKN), the world’s largest shipbroker, cited by the company. China’s share by value was 22 percent, second to South Korea.

The Asian nation delivered the most vessels by capacity for a second year in 2011, the Clarkson data showed.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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