China Shipyards May Scrap Downpayments, Researcher Bao Says

Shipyards in China, seeking to overtake South Korea as the biggest shipbuilding nation, may stop asking customers for downpayments as they vie for orders in a global recession.  Yards including units of China Shipbuilding Industry Corp., the nation’s largest, recently commanded advanced payments of as much as 70 percent, Bao Zhangjing, assistant director of the China Shipbuilding Economy Research Center, said today in Shanghai. The global shipbuilding industry will enter a recession of at least three years starting 2009 on slowing trade and lending, he said.
The deepening global financial crisis has slackened global demand for goods from large exporters including China, reducing sales of ships for carrying raw materials and finished goods. New orders in China are set to decrease 42 percent this year, the biggest drop among the three biggest shipbuilding nations, according to Clarkson Plc, the world’s largest shipbroker.
“Downpayments of zero won’t be the rule, but there will be occurrences,” Bao said, while attending a conference. “Generally, downpayments at Chinese yards may be less than 20 percent while demand is low.”
China last year surpassed Japan to become the second-largest shipbuilder by order backlog, according to Clarkson. The nation had 214 million deadweight tons of ships on order at the end of October, accounting for 32 percent of the global total, while South Korea, the biggest, had 217 million deadweight tons on order, and Japan had 112 million. Deadweight tonnage measures a finished ship’s carrying capacity.
‘Global Cancellations’
“Cancellations will occur globally,” Bao said. “Because China has relatively more start-up yards, many of them focusing on dry- bulk carriers, cancellations may be more severe here.”
The Baltic Dry Index, a benchmark of demand for shipping dry goods such as iron ore, posted a fifth straight decline yesterday on weakening steel demand. The index, down 93 percent from its May 20 record, fell 2.4 percent to 804 points.
New ship orders globally will fall 60 percent in 2009 from a year earlier to 60 million deadweight tons and will reach 50 million deadweight tons in 2010, Bao said. Slackened demand and canceled orders will leave shipyards with excess capacity beginning in 2012, he said.
Sales may drop next year as the trading environment becomes more “challenging” and the financial-market turmoil creates “uncertainty in some shipping markets,” Clarkson said Nov. 11.