China's shipbuilding industry to face tough times ahead

After two or three years' blowout, the Chinese shipbuilding industry will face a real test in 2011 to 2012, as the situation will be worse during the financial crisis. Shipbuilders in China are still busy because most orders are due to finish by 2011. Figures from China Association of the National Shipbuilding Industry show in the past three quarters of this year shipbuilders finished 16.82 million deadweight tonnages up by 40%YoY with new orders of 57.17 million DWT, down by 11% YoY and the ongoing orders of 210.84 million DWT up by 63% YoY accounting for 25.6%, 38.8% and 35.4% of global market respectively.
But ship builders still can not sleep well despite these orders. Experts familiar with the matter said gloomy demand, cancellation of orders, and difficulty in raising funds are the potential problems for the industry.
The Baltic Dry Index on November 25 dropped to 824 points, down by 92.6% compared with a former record of 11,067 points in May of this year. Recent figures show there are 180 capesize ships casting anchors due to no transportation deals and the rent was reduced to USD 5,000 per day from USD 180,000.
A senior ship broker to the Shanghai Securities News reported that the negative impact has already emerged in the second-hand ship market. "The quoted price has dropped by 50 percent in three weeks. A ship's dealt price was USD 28 million, far lower than the quoted USD 60 million.”
Brokers said biggest problem for ship owners is having no goods to transport. And the order cancellations will be worse if second-hand ship prices keep dropping.