Shipbuilding Prices Firm Up

Tuesday, June 19, 2001
International shipbuilders enjoyed a healthy year, with the main contributors being tankers and container vessels. Following upon these ordering activities, R.S. Platou saw shipbuilding prices firming up from the bottom level the previous year. Price for the tankers increased on average by 16 percent but the corresponding figure for container vessels was only 6.5 percent. Bulk prices showed a firming almost equal to that of tankers, but ended at an average of 13 percent after the prices for smaller bulkers softened towards the end of the year.

Korean yards were again this year the most aggressive, securing 46 percent of all new orders, equaling 18.5 mill. cgt. Proof of their dominance was that they secured 71 percent of all crude tanker orders and 57 percent of all product tanker orders. That amounted to 23.8 million dwt. Their market share for container vessels and LNG carriers was 53 percent and 50 percent, respectively. In terms of cgt Korea controlled nearly 40 percent of the world's shipbuilding capacity in 2000 with expectations that their share may increase further.

Increases in productivity and the Korean won contributed to the success story. Due to the Asian crisis the won fell from its level of about 900 against the US dollar to 1,800. It has strengthened since then and ended the year at 1270 to the U.S. dollar.

Japanese yards were able to secure a total of 10.2 million cgt, or about 25 percent of all new orders. R.S. Platou believes, however, that there is a substantial amount of handysize bulk orders from domestic accounts that are not included in the year end figures. The Japanese have again made their mark as the world's largest builders of this bulk tonnage after taking the 9.7 million dwt, equaling 67 percent of all new orders. Their markets share in crude tankers and container vessels in 2000 were 19 percent and 12 percent, equaling 6.7 million dwt and 1.5 million dwt, respectively.

The Japanese newbuilding capacity continued its trend from last year as we have seen deliveries decline by almost 14 percent in the last two years. Following a long and difficult period, NKK announced early in the year a 10 percent cut in its workforce by the end of 2002. Mitsubishi also announced plans to cut the workforce by 20 percent by 2006. In an attempt to increase operational profits, IHI joined forces with Kawasaki and Mitsui. NKK and Hitachi have also been involved in merger talks after last year's announcement by the Japanese government calling for a consolidation in Japan's shipbuilding industry.

The Chinese shipbuilding capacity is growing rapidly, and now accounts for some six percent of the world's total shipbuilding capacity in terms of cgt. China's position as an up-and-coming nation in the shipbuilding industry is evidenced by the order obtained by Dalian New Shipyard to build five VLCCs for NITC. Other yards have also been discussing new orders for VLCCs. In the year 2000, Chinese yards won approximately six percent of all orders, equaling 2.3 million cgt. Their order intake included some 1.4 million dwt bulk carriers, 0.4 million dwt container vessels and 0.9 million dwt tankers.

The Chinese building capacity is expected to grow considerably, as China Shipping Industry Corp., for example, plans to double its newbuilding capacity by 2005.

Europe also experienced an active 2000. Although attempts were made by Korean shipyards to penetrate the cruise market, all new orders for cruise vessels this year, except two that went to a Japanese builder, were awarded to European yards. Furthermore, they secured 24 percent of all orders for container vessels, with German and Polish yards taking the lead. As a result of increased activity German shipyards reported an increase in employment for the first time in 25 years. According to the University of Bremen, and to IG Metall, the number of workers in German yards increased by 0.7 percent to 20.7 during 2000. Deliveries from German yards are expected to increased and estimated to reach levels equal to those of the period from 1996 to 1998, i.e. about 1.3 million cgt in 2001.

The European Union made allegations against South Korea of unfair pricing, and at press time it appeared the matter could be headed to the World Trade Organization. They argued that the world shipbuilding market continued to be in a crisis seeing that "supply clearly outstripped demand." As a result, the heavier demand for ships in 1998 and 1999 had no effect on prices. It was further argued that Korean yards had accepted contracts below costs, thus creating a downward pressure on prices while increasing market shares.

Activity by Type of Vessel

In 2000 the market experienced the highest ordering activity in tanker tonnage ordering since the first half of the 1970s, namely a total of 36 million dwt. The large number of orders for tankers has undoubtedly been one of the major contributors to the rise in prices during the year.

Towards the end of the year VLCC prices were approximately $75/76 million, an increase of 10 percent over the bottom level in the previous year. Suezmax and Aframax prices increased even further, by 20 percent and 23 percent, ending at $50.5 million and $40.5 million, respectively. The orderbook for tankers of above 25,000 dwt stood at 48.8 million dwt by the end of the year. This is a 38 percent increase from the previous year; 59 new Aframax tankers were ordered, 36 Suezmax tankers and 64 VLCCs.

The strong activity in the bulk carrier segment seen at the end of 1999 continued into the early part of 2000. 14.5 million dwt in all were ordered in 2000, a decline from 18.5 million dwt ordered the previous year. As a result, the end of year 2000 orderbook stood at 34.3 million dwt. On average, prices for bulk carriers increased by 13 percent: Panamax and Handymax prices increased by 10 and 14 percent, ending at $22 million and $20.5 million respectively.

In year 2000 the ordering of container vessels increased to 12 million dwt from the previous year's seven million dwt. In terms of TEUs the order intake increased by nearly 40 percent to almost 900,000 TEUs, and there is a continued trend towards larger vessels.

Container vessel prices increased only 6.5 percent on average.

On the Cruise market front, 14 new vessels with six options were contracted in year 2000, and all except two with European yards. The new orders represent some 29,000 new berths, which brings the orderbook at the end of the year up to 51 vessels and approximately 101,000 berths.

Interest in LNG tonnage increased significantly in 2000, triggered by a range of new LNG projects and low newbuilding prices. There were reports of contracts as low as $140 million for 138,000 cbm, which is the lowest level since the late 1980s. As a result, for the first time in decades, owners ordered LNG ships without chartering commitments. Twenty vessels, amounting to 2,756,000 cu. m, were ordered. This brings the orderbook up to 26 firm vessels with 11 options, of which six vessels were without charter commitment. The ordering activity for LPG carriers picked up during year 2000 after a quiet period. Nine VLCC's and two mid-size vessels, equivalent some 800,000 cu. m., were ordered.

Prospects for 2001

R.S. Platou believes demand for new ships in 2001 will be more moderate than what was seen the year before, as the dry bulk and container market may be slightly over-contracted. There will be more tonnage delivered than what is needed in these markets over the next year. Ordering of cruise vessels may also have peaked. In 2001, it looks as though the shipbuilding industry will need to rely mainly on the tanker market and to some extent the LNG market. The recent IMO draft to phase out old tankers will most likely lead to substantial removals from the fleet over the next five years, a strong impetus for newbuilding contracts in the near term. According to R.S. Platou calculations 25-30 million dwt of tankers will be needed each year in the period from 2002 to 2006 in order to match the replacement program.

Source: As excerpted in part from The Platou Report 2001.

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