China: Shipbuilding in the doldrums

A growing number of shipbuilders in China have gone bankrupt in recent years, plagued by a severe recession in the global shipping industry and capital shortages, industry experts noted.

More than 20 Chinese medium-sized and large shipyards, including Jiangsu Eastern Heavy Industry Co and Sinopacific Shipbuilding Group, have closed since the beginning of 2015, Beijing-based newspaper the Economic Observer reported on Sunday.

Even major companies in East China’s Jiangsu Province, which posted stellar growth in its shipbuilding industry several years ago, are facing tough situations, with some on the brink of collapsing.

For example, leading shipbuilder Huarong Energy posted a loss of 1.96 billion yuan ($293.82 million) in the first half of 2016, according to the company’s financial statement. The shipbuilder’s gross debt totaled 31.12 billion yuan, far exceeding its total assets of 23.44 billion yuan.

“The shipping industry is enduring its worst downturn in its cycle of 200 years, which comes amid a worldwide trade slump,” Wu Minghua, a Shanghai-based independent shipping industry analyst, told the Global Times on Sunday.

The Baltic Dry Index (BDI), a major indicator for the price of transporting iron ore, coal and other raw materials by sea, plunged to an all-time low of 290 points on February 10.

That was far below the 1,500 point threshold at which shipping carriers can make a profit, according to Wu.

The recent collapse of the world’s seventh largest container-shipping line, South Korea’s Hanjin Shipping Co, further shows the difficulty faced by the industry.

“The shipping industry is confronted with overcapacity issues. About 30 percent of the space in ships is empty,” Wu said, noting that the halt of new orders has been a problem for shipyards.

But what’s worse is the capital drain that has hit many shipbuilders, as “shipbuilding is a capital-intensive industry with a cost averaging tens of millions of yuan,” experts noted.

“A shipowner’s down payment for an order has dropped from the previous 20 percent to 30 percent to less than 10 percent this year,” Wu explained, noting that this put strains on shipbuilders’ capital, as they need to pay in advance.

Lenders are gloomy on the prospects of the shipping industry, which makes it difficult for shipbuilders to secure finance through loans. They are left with no option but to undergo bankruptcy, the Economic Observer reported, citing industry players.

It is likely that more shipbuilding companies, especially the private small and medium-sized ones, will meet their demise, experts forecast.

“The rebound of the shipbuilding sector generally lags at least one to two years behind that of carriers, and there is no evidence of a recovery in the shipping industry in the next three years,” Wu said.
Source: Global Times