Order cancellations accelerate at China yards

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By Hui Ching-hoo in Hong Kong - Monday 25 May 2009

 

THE rate of newbuilding cancellations at Chinese shipyards accelerated sharply last month, while very few new orders are forecast given attractive secondhand prices. 
Data from the China Association of the National Shipbuilding Industry (CNSI) showed that 28 newbuildings orders totalling 1.1m dwt were axed during April at the country’s yards. 
The number of cancellations in April represented a significant jump over the first three months of the year when, according to CNSI, 16 newbuildings were cancelled at China’s shipyards. 
The exact number of cancellations at China’s shipyards remains open to question, however, as it is unclear if all axed orders have been disclosed. 
“The figure [of order cancellations] might not reflect reality because many shipbuilders do not want to make the figures public,” said an analyst at a Beijing shipping research centre. 
Meanwhile, the demand for new orders has suffered a sharp downturn this year, thanks to the global economic slowdown and tightening liquidity for shipowners. 
“Most of the China’s shipbuilders haven’t received any new orders in recent months,” said CNSI secretary-general Wang Jinlian. 
The association predicted demand for new oil tankers, containerships and dry bulk carriers would remain in the doldrums over the coming few months. 
It also predicted many shipowners would shift their attention towards acquiring secondhand ships, thanks to their competitive prices. This, in turn, would further squeeze the ailing shipbuilding industry, which is already feeling the pressure from owners to delay deliveries, lower prices and renegotiate contracts. 
Despite the lack of new orders, China’s shipbuilding revenues still rose in the first four months this year, although the momentum of the growth is noticeably tapering off. 
According to CNSI, the total revenues of 1,774 sizeable shipbuilders in China rose 39.4% to Yuan156.8bn ($ 22.9bn) between January and April. 
Although the orderbooks of many shipbuilders appear healthy at the moment, the dearth of new orders has cast a shadow over their future profitability and some effects are starting to be seen. 
Guangzhou Shipyard International, one of the largest shipbuilders in south China, issued a profit warning on April 10 saying the company suffered a 50% fall in net profit as a result of rising costs and a slump in newbuilding orders. 
At the company’s annual general meeting last week, Guangzhou Shipyard vice chairman and president Han Guangde revealed a lacklustre sales performance for the first quarter, with only one newbuilding order received for a firefighting vessel. 
However, with this single new order so far this year, Guangzhou Shipyard is better off than some of its competitors which have seen no orders at all. 
In view of the downward trend of newbuilding orders, CNSI revised its forecast for the year, quoting predictions that the new orderbook for the industry would stay below 10m dwt for 2009 as a whole. 
On February 11, China’s State Council approved a plan to revive the country’s ailing shipbuilding industry. One of the proposals urges China’s lenders to provide financial support to shipbuilding companies and to help some of the large shipbuilders with public listings and bond issues. Few effects from this have been seen as yet.