Ship Building Supply Glut Bites China's Shipyards

Chinese shipyards register a 49% plunge in first half 2012 orders.

'Gulf News' informs that China has 1,536 shipyards with annual sales of more than five million yuan ($780,000), according to the China Association of the National Shipbuilding Industry. Shipbuilding and shipping capacity surged because of speculation fuelled by China’s demand for raw materials. The government also provided low-cost financing for new vessels to help support shipyards.

That combination contributed to a global surge in orders from about 2007, including for dry-bulk ships, used to haul iron ore and coal. These vessels and cooling demand are now hammering charter rates. The benchmark Baltic Dry Index has dropped 26 per cent in the past year to 958 yesterday. It reached a high of 11,793 in May 2008.

Among capesize ships, the largest vessels tracked by the index, the global fleet has about doubled in five years to 1,464 at the start of the month, according to Clarkson. Three-year charter rates have tumbled to around $10,000 a day from about $55,000 five years ago, according to the London-based shipbroker. The slump has caused orders for new capesize ships to plunge. Worldwide, 12 capesizes were ordered in the first half, compared with 71 for the whole of 2011.

The drop in prices means that new orders are rarely profitable for Chinese shipbuilders, particularly for smaller ones, said UOB Kay Hian Holdings analyst Lawrence Li .Yards are also offering more generous payment terms, such as lower down payments, which is increasing financing costs, he said. “The shipyards don’t have bargaining power,” Shanghai- based Li said. “Demand is really weak.”