Large Shipbuilders Keep Profits Despite Steel Price Hike

An analyst from CITIC Securities Co., Ltd., said that the prices of steel products for shipbuilding would not increase as much as others, thanks to the long term partnership between shipbuilders and steel producers. Baosteel, a flagship in China's iron and steel industry, is a shareholder of China State Shipbuilding Corporation, and the two parties have co-invested in a leading shipbuilding base in China, Gao noted. Although China's steel enterprises have not yet released the growth rate of steel prices for the shipbuilding industry, Gao remained positive on the development of large shipbuilders. A researcher from China Shipbuilding Industrial Economy Research Center, predicted a rise of gross margins for large-scale shipbuilding enterprises in 2008, for they are more capable of coping with cost hikes than mid- to small-scale ones.

However, experts believe that surging steel prices will be a key factor that will push up the costs of shipbuilding enterprises in general and cut into the industry's profit. The costs to purchase steel are expected to grow 20 per cent in the first half of 2008 to range from $985m to 8 billion yuan. With the delivery of new shipbuilding orders this year, the market will continue to enjoy heavy demand thus easing the price hike of steel products, said Bao. In addition, the manufacturing costs of shipbuilding enterprises will go up 10 percent because the signed shipbuilding contracts for 2008 should follow the technology standards and criteria drawn up by international organizations. Source: Asia Pulse