Peak season arrives early! Spring has arrived for China's shipbuilding industry

September 28, Shenzhen Youlian Shipyard A busy day began. Market manager Wang Tao received one phone call after another. The wind was strong by the sea; he had to raise his voice from time to time.

In recent months, Youlian Shipyard's production has been very good. With the increase in popular ship types, they have felt a warming trend. In fact, with the Baltic Dry Index (BDI) rising for eight consecutive trading days to its highest point of the year and reaching a new high in recent years, the signs of recovery in the shipping industry are becoming increasingly apparent.

“From the Ship.cn monitoring According to the real-time shipping data from Ship.cn, this year's data has increased significantly compared to last year. The recovery period is one to two months ahead of the company's expectations, and the number of companies optimistic about future development is also increasing,” said Sheng Zunkui, general manager of the Yihai Lan Shipping Data Products Department and head of the Ship.cn department.

Along with the increase in shipping data, there has been frequent good news in the shipbuilding industry.

Recently, an order for 9 ultra-large 22,000 TEU container ships with a total order value of 9.6 billion yuan container ships After competition from multiple countries, the order finally went to China. CMA CGM signed letters of intent for the construction of ultra-large container ships with Hudong-Zhonghua Group and Shanghai Waigaoqiao Shipbuilding Company. This is the first batch of ultra-large ship orders since the third quarter of 2015. Before this large order, another order worth approximately 5.2 billion yuan also successfully went to a Chinese company. The construction contract for four 174,000 cubic meter large liquefied natural gas (LNG) carriers from Mitsui O.S.K. Lines was awarded to Hudong-Zhonghua Shipbuilding (Group) Co., Ltd.

China Shipbuilding Industry Association data shows that in the first half of the year, China received 4.63 million corrected gross tons of new shipbuilding orders, a year-on-year increase of 11.3%, ranking first in the world. The new ship repair load ratio (corrected gross tonnage/deadweight tonnage) reached 0.4, setting a new historical high.

Peak Season Arrives Early

Currently, shipyards are very sensitive to the new changes.

Wang Tao found that in previous years, only orders and production of offshore engineering vessels for drilling and oil extraction were relatively stable, but this stability has extended to other types of vessels this year. “For example, luxury cruise ships and LNG carriers,” said Wang Tao.

In fact, data from Clarksons Research in the UK shows that in the first seven months of this year, global cumulative new shipbuilding orders reached 31.43 million deadweight tons, exceeding the total for last year.

The changes in the shipbuilding industry are based on the recovery of the shipping industry.

As of September 25, the BDI closed at 1503 points, rising for eight consecutive trading days to its highest point of the year and reaching a new high in recent years. Industry analysts believe that as the dry bulk market enters the traditional peak season, the BDI still has room to rise this year, and shipping will further recover. In the first half of this year, global container transport volume was approximately 99.3 million TEU, a year-on-year increase of 3.7%, an increase of 2 percentage points. The increase in container orders far exceeds the increase in transport volume in the first half of the year. In addition to the growth brought about by the low base and renewal demand, it also indicates the optimistic expectations of shipping companies for the second half of this year and even the next two years.

According to data from Ship.cn, which provides real-time visual ship position tracking services, the peak season for ship operations this year has arrived one month earlier than in previous years.

As a rule, the shipbuilding industry's response to the economy is always slower than the shipping industry.

“Since the 2008 financial crisis, the global shipping industry has been experiencing a continuous decline. However, the shipbuilding industry held orders from before the crisis, and production remained relatively strong until 2012, when these pre-financial crisis orders were basically digested, and the shipbuilding industry began to enter a real winter. This cycle was three or four years slower than the larger cycle,” said Sheng Zunkui.

After 2012, the delivery of ships caused the shipping industry, which was in a trough, to be in a state of relative overcapacity for many years.

“The current market overcapacity problem has been somewhat alleviated compared to two years ago, mainly due to the reduction in ship scrapping and the reduced intensity of capacity additions in recent years. Generally, the capacity, that is, the ships, will always exist in the market throughout their entire operating life cycle. In the case of a poor market environment, shipowners will first scrap older or less efficient ships. This has absorbed some capacity,” introduced Lin Shulai, general manager of the Yihai Lan Shipping Big Data Department.

Lin Shulai believes that the orders currently transmitted by market information mainly come from larger shipping companies. In practice, shipping companies' shipbuilding will be carried out in stages and batches, and adjustments will be made according to market conditions. Whether the recovery is complete is uncertain. At least, the sustainability of the increase in orders has not yet been seen.

“The market price rebound in the shipping industry is quite obvious, but it is only a temporary rebound, and it cannot be said that it will continue to be sustainable. In the medium to long term, it may still fluctuate within the current range,” said Lin Shulai.

Future Prospects

Although shipyards are cautiously optimistic, there has been frequent good news in the Chinese shipbuilding industry recently.

Recently, Youlian Shipyard's parent company, China Merchants Heavy Industry, may win a $1.5 billion order for two next-generation drilling vessels from the American drilling contractor Diamond Offshore, which has also excited the Chinese shipbuilding industry.

After CMA CGM's large order of 9.6 billion yuan stirred the market, on September 21, Mediterranean Shipping Company also confirmed that it would order 11 22,000 TEU ultra-large container ships.

In Sheng Zunkui's view, mergers and acquisitions of shipping giants are continuing, and the size of “giants” is becoming larger and larger. This will accelerate the demand for ultra-large ships and accelerate the scrapping of old ships, bringing new hope to the shipbuilding industry. For smaller shipping companies, ordering new capacity according to their own needs has also become an option to enhance their competitiveness.

In Lin Shulai's view, it is not surprising that China frequently receives foreign orders. China is currently the world's largest shipbuilding country, and China's overall manufacturing strength is strong. Foreign shipbuilders choose to build in China because of the cost and technological advantages.

For the past five years, China's shipbuilding industry has consistently ranked first in the world in terms of new orders and backlog, with its shipbuilding completion volume ranking first for four years and second for one year. In the first half of this year, China's shipbuilding industry once again secured the top spot in the world in all three major indicators." Lin Shulai said.

Moreover, structural optimization is also quite evident.

Data from the China Shipbuilding Industry Association shows that in the first half of 2017, 26.54 million deadweight tons of ships were completed, a year-on-year increase of 57.4%. In the first half of this year, China's key shipbuilding enterprises have undertaken a large number of orders for 84,000 cubic meter ultra-large gas carriers (VLGCs), 115,000-ton product oil tankers and other high-tech, high value-added vessels, indicating that China's shipbuilding industry has made some progress in its transformation and upgrading; at the same time, China's key shipbuilding enterprises have built the world's most advanced 6,000-ton stone-dumping vessel and the world's first 25,000-ton LNG high-pressure dual-fuel general cargo ship the world's largest 38,000 cubic meter ethylene carrier, and the world's largest 21,000-ton cement carrier and other high-end ship types and ocean engineering equipment have been successfully delivered to shipowners.

"High value-added ships are an important area of international competition. China's efforts in the field of high value-added ships meet the changing market demand, and China is transforming from a shipbuilding giant to a shipbuilding power." Hu Wenlong, associate researcher at the Institute of Industrial Economics, Chinese Academy of Social Sciences, said.

At the same time, in terms of policy, the state also strongly supports the shipbuilding industry to accelerate its transformation and upgrading.

In January this year, the Ministry of Industry and Information Technology and five other departments jointly issued the "Action Plan for Deepening Structural Adjustment and Accelerating Transformation and Upgrading of the Shipbuilding Industry (2016-2020)", stating that by 2020, efforts will be made to enter the ranks of the world's leading shipbuilding powers and advanced countries in ocean engineering equipment manufacturing. Efforts will be made to increase the share of shipbuilding output in the global market by 5 percentage points on the basis of the "Twelfth Five-Year Plan", and the international market share of ocean engineering equipment and high-tech ships will reach 35% and 40% respectively; the industrial concentration will be significantly improved, with the top 10 shipbuilding enterprises accounting for more than 70% of the national total shipbuilding completion volume; and the technological innovation capacity will enter the advanced ranks of the world shipbuilding industry.