Feature 1 | CHINA Torches extinguished
Sam Chambers looks at the dramatically changing shipbuilding landscape in China and warns that up to 50% of yards could fold by 2015
the disappearance of ship orders this year. Memorably he describes much of what he saw – mothballed shipyards – as ideal film sets for a Stanley Kubrick movie. “Tree years ago,” he recalls, “these were all brand new sites boasting fantastic business plans, now they’re dead – vast industrial wastelands.” Around 80% of shipyards in Zhejiang
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province have either suspended production or are operating at half their capacity. “Te grass is growing high in many yards
that have closed due to a lack of orders,” says Zhang Shouguo, secretary general of the China Shipowners’ Association. Chinese shipyards’ preponderance to
basic ship types meant it was also going to be hit hardest when a downturn came. Te downturn was a double hit for yards in the People’s Republic: just offshore gas ships remained popular purchase options for owners, something the Koreans have a strong lead in. Moreover, those owners willing to order are only willing to do so for fuel-efficient ships amid the seemingly never ending era of high bunker costs – here again China loses out to its neighbours Japan and Korea. Te majority of China’s builders are still
focused on basic bulkers and tankers. Around 65% of the tonnage delivered by China last year was bulk carriers. China’s lack of serious technological
expertise has been discussed this year by the nation’s very top shipbuilders. Tan Zuojun, for instance, the president of state-run China State Shipbuilding Corporation, reckons half of all shipyards in China will go to the wall through to 2015, with this year seeing the greatest consolidation. While there are more than 1,500 shipyard
members of the China Association of the National Shipbuilding Industry (CANSI) only roughly 370 of these build ocean-going vessels, down from 400 at the start of the year. Shanghai shipbuilding consultant Ben
Zhang says that number will probably dwindle to less than 50 by 2015, while Greek ship financier George Xiradakis tells Te Naval
The Naval Architect September 2012
eijing-based ship financier Li Deng Bai recounts a recent trip to Zhejiang province, the region hardest hit by
Architect the eventual figure is likely to be no more than 30 as a massive period of mergers and acquisitions gets underway. More than 30% of CANSI members failed
to receive a ship order last year, and in the first five months of 2012 one in two shipyards have not received a single order – orderbooks are expiring, workers being laid off, welding torches extinguished – and banks are pulling the plug on countless yards. Chen Peibin, an official from Zhejiang
Jingang Shipbuilding, one of the bigger names to announce a suspension of business recently, tells Te Naval Architect: “At that time of the absolute peak period for the shipbuilding industry in 2008 banks were falling over themselves to finance ships, but now shipyards have fallen into banks’ blacklist.” Banks have switched their views on
shipbuilding, defining it now as a “high-risk industry” and refund guarantees have become harder to clinch. “Te overcapacity in this industry means
it’s a high risk to a bank. It is natural for us to prefer large sized state-owned companies,” an official from the credit department of a state-owned bank confides. Ship orders in the first five months of the
year declined 47.3% to 9.54 million dwt. Moreover, the ship orders being taken are
oſten coming in at prices that are not profitable – the yards are taking deals to keep docks ticking over, but at a loss. For instance, prices for capesizes have slipped to around US$47 million as we went to print, some US$8 million below what analysts believe is a breakeven price. Likewise, panamax bulkers have been sold for as little as US$23 million each, around US$7 million below the breakeven point. “We believe that ship prices have yet
to bottom out and there is still plenty of negotiating room for owners to squeeze prices downwards still through to the end of this year,” says an analyst at a Beijing state-run bank. Te downturn has also given Chinese
planners pause for thought about how they go about their shipbuilding business. Lowballing on price has always been China’s ace card in competing with its
East Asian rivals but the disparity in costs is narrowing as wages rise in China and Korea becomes ever more automated in its approach to shipbuilding. “China’s delivery per person, which
represents yard productivity, only remains at 30% of those in South Korea and Japan. Also,
its localisation of
equipment lingers at 60%,” researcher Bae Yong-Il from the Samsung Economic Research Institute of South Korea warned in a recent report. Korea’s output per man is about 4.5
million dwt, three times that of his Chinese counterpart. Worse still is that Korea’s production value per man is around RMB3 million (US$470,000), far more than the RMB0.75 million (US$117,500) of the average Chinese worker. It takes Koreans around 12.5 hours to complete one compensated gross tonne of a ship, while China is targeting getting to 15 hours by 2015. China must become smarter with its manpower or else the margins over Korea that are its trump card will evaporate. “We predict that in the next two or three
years, for both the Chinese and international market, the shipbuilding industry will enter into a merger period. Our government will further optimise the shipbuilding industry structure, promote various kinds of merger and improve industry centralisation,” Guo Yanyan, an official from the Ministry of Industry and Information Technology says. Beijing is aware that it needs to up its
game in LNG (see page 56) and offshore to ensure more orders, and by extension employment for urban workers. China’s builders secured 18 offshore units
totalling US$5 billion, accounting for 10% of the global offshore order intake in 2011, according to CANSI. Under a mid- to long-term plan Beijing
announced this spring the goal is to boost earnings from offshore construction to RMB400 billion (US$62.8 billion) by 2020, 10 times last year’s figure. By 2020 China should account for 50% of all offshore construction, again growing its share ten fold in the coming eight years. NA
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