Shipyards in China still Dominating Newbuilding Market

Chinese shipyards continue to dominate the newbuilding market - and with a now significant pricing spread having been established between Korea and China - this dynamic looks unlikely to waver for the remainder of this year said a Clarksons report this week. “This is not to say that Korea has become dormant by any means - and we are now seeing the Korean yards pushing the box ship story quite aggressively, with consistent reports of both fresh enquiry and new business being concluded. With the broader model of the containership sector now evolving against the collapse of the KG's - we may well see some further orders placed on a more speculative basis before the year end, with owners that had traditionally veered away from box ships now becoming increasingly interested against strong potential for further trade growth and increased demand” said the report.
Meanwhile, as far as the more conventional Dry and to some extent Wet sectors - Korean appetite seems to have largely been absorbed. With yards now having the cushion of strong forward orderbooks, they are now less keen to extend their exposure to Dry and with tanker sentiment weakening against a tight trading environment, we do not envisage the Korean yards continuing to push the market quite so aggressively going forward - and are more likely to watch the market evolve as opposed to chasing it quite as aggressively as they had done in the first part of the year.
In terms of reported business: In Dry, Daiichi Chuo Kisen are reported to have ordered 6 option 3 x 36,000dwt Handysize vessels at Hyundai Mipo delivering through 2012 and 2013. Bao-Island Enterprises have ordered 1 option 1 x 180,000dwt Capesize vessels at Qingdao Beihai for delivery in 2012. Rio Tinto have also signed at Oshima Shipbuilding for a pair of 73,000dwt caustic soda carriers for delivery in 2012 & 2013. In Wet, it has been reported that Sovcomflot have ordered 6 option 6 x 120,000dwt Aframax Tankers with DSME that will be built between DSME and Zvezda Shipyard in Russia within 2014.
According to a recent story from Clarksons, although for seven months between November 2008 and May 2009 the market was dead, with only 233,000 dwt ordered in May 2009, the market is now filled with orders. Since June 2009, ordering activity has picked up and since then, while analysts argued about cancellations, investors were busy ordering another 107m dwt of tankers and bulkers. With a bulker orderbook of 277 million dwt (54% of the fleet), orders for another 74 million dwt takes some explaining. Tankers, with a 127 million dwt orderbook (28% of fleet) and orders for 34 million dwt, are a bit easier to understand.
According to the author, Dr. Martin Stopford, “viewed from the investor’s perspective, this is just business. Shipowners are paid to take risks and counter-cyclical ordering is a bit like backing an outsider in a horse race. The rationale for bulkers probably goes something like this. The ships ordered today are much cheaper than they were 2½ years ago - for example a Supramax cost $48m in December 2007, but today a similar ship can be ordered in China for $28.5m. That’s a 40% discount. If things don’t work out, it’s still a cheap ship with a 25 year life which will span many market cycles. So it might work. After all, despite heavy deliveries, today’s bulker market is holding up ok. China consistently surprises and still has a long way to go. Even if the steel industry falters, coal is waiting in the wings along with all the minor bulks that this gargantuan economy gobbles up. Anyway, delivery is not until 2012 when the cycle might be on its way up again. So why not take a chance while the yards are hungry? This logic is fine, but only works if just a few punters back the outsider. But the shipyards have a lot of hungry berths to feed and they can be persuasive. As the deliveries accumulate, any recovery is pushed further into the future. In short, what works for a few shipowners can defeat many” said Dr. Stopford