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China Research and Intelligence: China's Ship Manufacturing under Financial Crisis See a not wholly Gloomy Future

www.shcri.com -- In April 2009, the transaction volume of new ships reached 84,000 DWT, nearly seven times more than 11,000 DWT in March. After six years’ high growth rate of orders, China’s ship manufacturing suffered heavy losses in the global financial crisis. New orders in Q1of 2009 represented a year-on-year slip of 95.6 percent to 440,000 DWT. But no order was cancelled in March.

 

In Q1, 2008, the growth rate of sales revenues of China’s ship manufacturing hit a high record of 74.04 percent. However, due to the declining shipping industry and some ship owners’ inability to pay the ship costs, many orders were cancelled and the growth rate began to decrease. These losses were usually suffered by the ship manufacturing enterprises.

 

From October, 2008 to February, 2009, 110 ship orders, totaling 2.74 million DWT, were cancelled while in the early two months of 2009, 13 ship orders were cancelled.

 

Most of these cancelled orders were long-term delivery ones, 2 ships, 118,000 DWT in 2009, 6 ships, 393,000 DWT in 2010 and 5 ships, 153,000 DWT in 2011. As for the type of these orders, most were bulk cargo carriers with some container ships. Under this situation, the ship supporting enterprises would be severely attacked and cases of cancelled orders ad deferred payments would usually occur.

 

In the early three months of 2009, the sales revenue achieved a year-on-year increase of 22.12 percent to RMB 5.459 billion while the cost increased by 39.95 percent year on year to RMB 4.584 billion as well. Thus, net profit slipped by 36.3 percent to RMB 623 million and the rate of net assets gains declined by 3.43 percent to 4.92 percent. The increasing outputs and decreasing orders led to the oversupply of the industry.

 

The steel price index dropped to 95 points in middle April of 2009, even 5 percent lower than that of 15 years ago.

 

However, the decreasing steel price did not raise the profits of ship manufacturing enterprises. It was partly because steel, as the major raw material, should be purchased early. For example, steel used in Q1, 2009 were purchased in Q1, 2008, when the steel price was still high.

 

It could be implied that revenues of Q2, 2009 will show a slight fluctuation on the basis of revenues of Q1, 2009 while the declining steel price will contribute to the increasing revenues of ship manufacturing enterprises in Q3, 2009.

 

Although the cost expenses are slipping, the ship prices and orders represent a downtrend. Ship outputs are increasing while orders remain decreasing. Major risks are that ship owners might breach the contract or ship factories and ship owners reset prices to make the losses suffered by both sides.

 

The lower labor cost enables the China’s ship repair industry to take an advantageous position on international market. But the ship repair price began to drop after October 2008, which also pulled down the profit of ship repair industry.

 

As time goes by, the global financial crisis will affect more industries. Especially since the early 2009, risks and difficulties that ship enterprises are facing have showed an uptrend.

 

According to the “Adjustment and Revitalization Plans of Ship Industry” issued in February 2009, government stated that new projects of expanding docks and berths would be suspended, that is to say, those redundant projects of low levels would be adjusted or kicked out of market.

 

Though severely affected by the global financial crisis, China’s ship manufacturing also has some potential opportunities of investment.

 

On April 30th, 2009, many shipbuilding representatives and maritime affairs officials from Norway and South China attended the seminar “Developing Trend of Shipbuilding Industry in Future” held by The Norwegian Consulate General in Guangzhou and Innovation Norway. Participants discussed the current state and prospect of shipbuilding industry in South China, as well as how Norway should use its maritime advantages to assist Guangzhou to be the base of global shipbuilding industry and ocean industry. Enterprises from Norway included DNV17-GroupWilhelmsen, Ulstein, Kongsberg, Rolls-Royce, MultiPlus Solution, etc.

 

Norway is leading in the concepts and technologies of ship design, manufacturing, environment protection and offshore oil and gas development. At present, many Norway enterprises have entered Shanghai and Dalian while some are active in South China. These businesses provide the equipment, technologies and services needed by China’s shipbuilding industry.

 

Source: China Research and Intelligence

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