China’s shipbuilding industry urged to accelerate overcapacity reduction

In the first quarter of this year, driven by the low rebound in the international shipping market, the order volume of new ship in China have grown, but the handheld shipbuilding orders, the value of gross output of shipbuilding industry and the enterprises’ economic efficiency are all still declining. Insiders stressed that the shipbuilding industry has not yet bottomed out currently. With the outbreak of the contradiction in the structural overcapacity, the industry will enter a substantive stage of adjustment.

The order volume for new ship is an important index that reflects the market prosperity of the shipbuilding industry. Impacted by the global shipping market downturn, the order volume of new ship in China has declined for two consecutive years. In 2014, China’s shipbuilding industry received new ship orders 59.95 million DWT, down 14.2 percent year-on-year, while that in 2015 was only 31.26 million DWT, down 47.9 percent.

Statistics released by China Association of the National Shipbuilding Industry recently show that in the first quarter of this year, China received 7.42 million DWT new ship orders in total, an increase of 23.9 percent year-on-year, being the first positive year-on-year growth in the last two years.

Although the order volume of new ship is compelling, it still cannot change the reality of the current downturn of new ship market. According to data from China Shipbuilding Industry Economic and Market Research Center, in the first quarter of this year, the total number of new ships in closed deal was 77, or 9.66 million DWT, down 77.8 percent and 60.2 percent respectively year-on-year. Viewing monthly, the average trading volume in January and February was less than 600 thousand DWT. In March, although the order volume of new ship has soared to 8.479 million DWT, the real trading volume was just 479 thousand DWT deducting the non routine orders of 20 VLOC (Very Large Ore Carrier) vessels of 400 thousand tons ordered by China Ore Shipping and China Merchants Energy Shipping. Only for 1 or 2 orders, the proportion of the trading volume accounts for more than 80 percent of the global orders volume, indicating that the market demand has been almost stagnant. The Center analyzed that in recent ten years, the global shipbuilding capacity has rapidly expanded and the excess capacity in shipping market has accumulated gradually. But stimulated continuously by the factors including speculation and policies, the market adjustment has been postponed over and over. Along with the global economic recovery being weakened especially China’s economic growth slowing continuously, the shipping market demands, regardless the spot demand or future demand, have been unable to support the shipbuilding industry to “move forward with sick”.

Another set of data proves further that the shipbuilding industry has not yet out of the trough. In the first quarter, the finished volume of shipbuilding in China was 8.35 million DWT, down 11.8 percent year-on-year; at the end of March, the volume of handheld shipbuilding orders was 120.35 million DWT, down 17 percent year-on-year, 2.2 percent lower than that at the end of 2015; from January to March, in shipbuilding industry the 94 companies being specially monitored have completed a gross industrial output value of RMB 95.2 billion yuan, fell 1.3 percent from a year earlier. In terms of enterprise economic efficiency, from January to March, 94 companies being specially monitored have achieve a main business income of RMB 66.3 billion yuan in total, down 3.5 percent year-on-year and profit value of RMB 430 million yuan in total, down 28.9 percent compared with the same period of last year.

Seeing from the shipping market and the price trend of the new ship, the downturn in shipbuilding market is difficult to be quickly reversed. In the first quarter, it was more obviously that the growth of shipping volume was slowing down due to the economic growth of world’s major economies’ slowdown, making the shipping demand of main cargo categories going weak, the global transport supply and demand being imbalance, and the freight price in the market being pressed continuously. The Clarksea comprehensive freight index has shown a one way down from USD 13,876/day in early January to USD 8764 / day in early March. Although rebounded slightly after that, the cumulative decline in the quarter was still as high as 30 percent. The average price of that quarter was only USD 10385 / day, far below the level of USD 30,000 / day before crisis.

Affected by the weakening of the global demand for new ships, the new ship prices of the first quarter continued its downward trend since 2015, Clarksea new ship price index has continued to decline from 131 points in January to 130 points in March. Insiders analyzed that with the downturn in the demand for new ships and the drop of handheld orders, there will be a larger capacity gap in 2016 in some domestic shipyards, and even be greater in 2017. This will result in increasingly fierce competition in the shipping industry. So it is imperative for shipbuilding industry to accelerate the process of reducing excessive capacity and carrying out the transformation and upgrading.
Source: China Economic Net