Chinese shipbuilders sink into the doldrums

The glory days seems to be over for the nation’s shipyards after a rough first half, as companies face a wave of challenges, including declining orders, rising difficulties in fundraising and weak profitability, recent industry data showed.

These trends are plaguing both the domestic and global shipbuilding sectors, which face lackluster global trade and overcapacity in the shipping industry, which have combined to drag down demand for new ships, experts noted.

In the first half of 2017, new orders received by Chinese shipbuilders plunged by 29 percent year-on-year in terms of total estimated freight volume for the new ships, according to data released by the China Association of the National Shipbuilding Industry (CANSI) on Friday.

The order backlog fell by more than 30.5 percent year-on-year as domestic shipbuilders completed orders 57.4 percent more quickly than in the same period last year, the data showed.

With new orders dwindling, shipbuilding companies are facing “severe challenges,” as most companies only have enough orders to keep them busy through 2018, the CANSI said, adding that more shipyards will be idle and some will face serious challenges to stay open.

On top of declining orders, domestic shipbuilders also face shrinking profit margins amid intense competition on prices and low utilization of shipyards, the organization said. Rising labor costs might have also hurt the profitability problems of shipbuilders, experts added.

Total first-half revenue for 80 major shipbuilders monitored by the CANSI declined by 11 percent year-on-year 128 billion yuan ($18.96 billion) and total profit dropped 49 percent to 980 million yuan.

In addition, shipbuilders are under heavy cash flow pressures, and they face difficulties raising money because of their weak performance, the CANSI said. “[These issues] have not been fundamentally resolved and the stable development of the shipbuilding industry faces major challenges,” it said.

These issues will not be resolved in the near term either, because the Chinese shipbuilding industry relies heavily on international orders, which are being depressed by lackluster global trade and overcapacity among shipping companies, experts noted. “This is not an issue unique to China. It’s a global trend that is affected by many things,” Liu Wei, an analyst at Minsheng Financial Leasing Co who specializes in the shipbuilding industry, told the Global Times on Monday. “The whole global shipbuilding industry is in the doldrums.”

China is the largest shipbuilder in the world and global orders account for a large portion of the total received by Chinese shipyards, Liu said, adding that companies in South Korea face similar challenges.

In the first six months of 2017, global orders accounted for 88.2 percent of total new orders and 92.6 percent of existing orders, according to the CANSI data.

New orders and existing orders from overseas clients declined 29.1 percent and 32.1 percent year-on-year, respectively.

“Given the poor performance of global trade in recent years, there is just not enough demand for shipping and, in turn, ships,” Liu said.

Shipping lines have too many vessels and not enough cargo to carry, according to Zhang Yongfeng, director of the shipping market analysis department of the Shanghai International Shipping Institute.

“Most shipping companies, both foreign and domestic, are facing many challenges of their own. Many of them have a cash flow problem. So clearly, they don’t need and aren’t able to place new orders,” Zhang told the Global Times.

Despite such pressing issues, the shipbuilding industry is in transition to becoming a more advanced and competitive participant in the global market, the CANSI said, urging the government and financial institutions to provide financial and policy support to help the industry’s transformation.
Source: Global Times