China: Shipbuilders See More Vessel Orders, but Profits Not Trailing in Their Wake

China’s shipbuilders saw a surge in orders for new ships in the first half of the year, but this has not yet led to their improved profitability.

Shipbuilders received orders to build some 40.8 million deadweight tons (DWT) worth of new vessels in the first six months, up 78.2 percent compared to the same period last year, data from China Association of the National Shipbuilding Industry show.

However, midyear reports from five companies listed in Shanghai and Hong Kong showed they still faced declining profits.

China CSSC Holdings Ltd. received orders for 36 ships in the first half of 2014, up 11 percent, its midyear report shows, but its gross profit margin was 8.4 percent, down 3 percentage points.

China Shipbuilding Industry Co. Ltd. received orders for vessels worth 12 billion yuan, 157 percent more than for the same period last year, but its net profit was 1.339 billion yuan, down 20 percent.

The gross profit margin of Sainty Marine Corp. Ltd. was 9.8 percent in the first half, down 5 percentage points compared with a year earlier. The figure for Guangzhou Shipyard International Co. Ltd. was only 0.23 percent. It had net profits of 41.92 million yuan, a 42.4 percent decline.

China Rongsheng Heavy Industries Group Holdings Ltd. received orders for six ships in the first six months of the year, after receiving none in the same period last year. However, it suffered a loss of 3.061 billion yuan in the first half, 1.8 billion yuan more than it lost a year ago.

Shipbuilders have lowered prices to attract buyers, said Lu Jiandong, vice president of Zhejiang Zhenghe Shipbuilding Co. Ltd. Should they raise prices, they will not get so many orders.

A source from a private shipbuilder said companies were taking orders that would return little profit or even incur a loss just to keep operations going.

“Shipbuilding companies still face difficulties to get full payment for low-priced orders,” he said. “Buyers ask companies to complete a ship on time, otherwise buyers may not pay or only pay a little.”

Analyst Tan Naifen, from the shipbuilding association, said buyers made small down payments and builders had to raise funds themselves, which was difficult.
Source: Caixin Online