Auto & Transportation

The surging market conditions of container transportation (hereinafter referred to as "consolidation") and dry bulk transportation (hereinafter referred to as "dry bulk") have given birth to a "prosperous scene that has not been seen in ten years" in the domestic shipbuilding industry. "Bonely" suddenly entered the "heat wave pressing" situation.

Under the grand occasion, is it a "feast" or a "leftover feast"? Disagreements within the industry.

Han Ning, Director of Drewry (International Shipping Research and Consulting Agency) China, believes that this year’s "order wave" is unique: "Most of the orders are for the upgrading of old ship types and the improvement of the capacity of regional routes. It’s new capacity. In addition, there were few new ship orders in the past two years. At the beginning of this year, ship prices and financing costs fell to the shipowner’s psychological range. Shipyards also urgently need orders to maintain operations, so it’s easy to hit it off."

Other analysts said that the epidemic and environmental protection requirements have prompted the arrival of the new shipbuilding cycle ahead of schedule; others in the industry are cautiously optimistic that the high cost at this stage has caused shipbuilding companies to struggle. The worst result"; the industry association warned that "increasing revenue but not profit is obvious."

A "bull market" not seen in ten years

The domestic shipbuilding industry, which has been in the “stock game” for many years, released its production capacity for the first time.

On July 31, with the mass start of 1800TEU (standard container) ships, Changbo Shipbuilding, a subsidiary of Yangzijiang Shipbuilding, the largest private shipbuilding company in China, resumed its shipbuilding function after suspending operations for 9 years. At the same time, Seaspan Corporation, the world's largest independent container ship owner, signed an order for 10+5 new Panamax LNG-powered container ships with Yangtze River Shipping. So far, Yangzijiang Shipbuilding Industry has received 112 new ships this year, totaling US$6.67 billion (approximately RMB 43.094 billion), of which 79 container ships of various types have been received; the cumulative number of orders held has jumped to 167 ships, of which 111 ships. One is a container ship.

"2021 is the best year for Yangzijiang Shipbuilding to receive new shipbuilding orders in its history," said Ren Letian, chairman of Yangtzejiang Shipbuilding, when releasing the company's semi-annual report.

The release of reserve capacity and receipt of bulk orders are just a microcosm of the explosion of new shipbuilding orders in the first half of this year. The continued prosperity of the shipping market in the second half of last year led to a "blowout" of new shipbuilding orders. In the first half of this year, global new shipbuilding orders set a new high since 2014.

"Since the beginning of this year, the global shipbuilding and offshore engineering market has bottomed out and rebounded strongly, and there has been a boom that has not been seen in ten years. Orders have been concentrated and heavy. The Baltic Dry Bulk Index (BDI) has exceeded 3,000 points, and the price of container freight has been rising. Globally. The shipping companies shared the benefits of the industry’s bull market and scrambled for orders.” China State Shipbuilding Corporation announced on July 5 that it had received orders for 232 new ships and 18.386 million dwt in the first half of the year, a year-on-year increase of 2.9 times and completed ahead of schedule. The annual order plan, the market share ranks first in the world.

On July 15, COSCO SHIPPING Holdings announced that it plans to spend 10 billion yuan to order 10 ultra-large container ships to expand the fleet. According to the announcement, COSCO SHIPPING Holdings will newly order 6 14,000-box and 4 16,000-box container ships at an agreed total price of US$1.496 billion, equivalent to approximately RMB 9.67 billion. The above-mentioned order will be undertaken by COSCO Shipping Heavy Industries, which is also a subsidiary of COSCO Shipping Holding Group.

Mediterranean Shipping, the world's second largest container shipping company, leads the industry with 51 newbuilding orders worth nearly one million TEU. It is only a matter of time before it surpasses the Maersk Group to become the number one in shipping capacity.

According to Clarkson's statistics, in the first half of this year, global shipbuilding companies received a total of 766 new ships totaling 24.02 million revised tons, a year-on-year increase of nearly 200%. As of the end of June, global shipbuilding orders held 80.91 million revised tons.

Chinese shipbuilding companies received 10.59 million revised tons and 30.41 million revised tons respectively, ranking first in the world; South Korea’s orders for new ships increased by about 7 times year-on-year to 10.47 million revised tons, only lagging China by 12 Ten thousand revised tons.

Extreme market is reversed

"There are a lot of orders this year, but it can be seen that the orders of previous years have been postponed until this year." An industry analyst told reporters that on the surface, the high freight rates and strong demand in the shipping market have triggered a wave of orders, but in the final analysis it is In recent years, the "order shortage" of newbuildings has left the market in an unbalanced state.

According to data from the China State Shipbuilding Association, global orders for hand-held ships will be 159.94 million dwt in 2020, which is almost "halved" compared to 2014's 316.88 million dwt. “my country’s new ship orders have been less than 30 million deadweight tons for two consecutive years, and the number of hand-held orders has continued to decline, setting a new low since the 2008 financial crisis. Only a few companies can meet the production tasks for more than two years, and key companies generally face under-operations. Some companies have the risk of production disconnection.” The association said in its analysis of the economic operation of the shipbuilding industry last year.

The extreme market is "chilling to the bone", and many shipbuilding companies are in business difficulties. For example, Taizhou Port Shipbuilding Co., Ltd., one of the top ten domestic shipbuilding companies, was bankrupted and reorganized last year due to a broken capital chain; Samsung Heavy Industries, one of the three largest shipping companies in South Korea, has suffered losses for 15 consecutive quarters since the fourth quarter of 2017. The rate reached 247.54% at the end of last year. An industry insider confessed to reporters that “difficulty in financing, difficult to receive orders, and difficult to deliver” has always plagued the domestic shipbuilding industry. Many shipbuilding companies’ hand-held orders can barely maintain the “life-and-death line” of a year’s start-up. Shipyards that do not go down either go bankrupt or stop production."

In this context, the shipping companies' order grabbing in the first half of the year meant "emergency relief". "If no new orders are received, the dock will be empty in the first half of next year." A manager of a domestic shipping company told reporters. It is understood that the order signed by the ship company in April this year has now started, and it can just fill the docking cycle as scheduled.

In the modern shipbuilding model, the role of the dock is very important-the scale determines the construction capacity of the shipbuilding enterprise, and the length of the cycle reflects the construction efficiency of the shipbuilding enterprise. The most important work of the dock stage is to carry the ring-shaped general section to make the whole ship structure through, and to install the main engine and other equipment to make the ship have the conditions for launching. The vacant docks mean that production has stalled, which is the worst situation that any ship company must try to avoid.

On the other hand, the application of innovative technology is further shortening the docking cycle. Taking Jiangnan Shipbuilding under China Shipbuilding Corporation as an example, the "electronic test box" process replaces the traditional "manual test box", which shortens the docking cycle of container ships from more than half a year of 5,100 TEU to 4 to 5 months of 23,000 TEU. Only sufficient orders can maintain high production efficiency and bring economic benefits.

Be wary of "increasing income but not profit"

In the ups and downs of the industry, the market trend is changing. The BDI index rose from 3039 points on July 15 to 4092 points on August 20, a monthly increase of more than 34%, breaking the 4000-point mark again after 11 years.

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"Recently, new orders for container ships are basically suspended, and there are more inquiries and orders for dry bulk in the market." The aforementioned industry insiders told reporters that new orders for bulk carriers have quietly increased under the stimulation of BDI, and they are expected to take over container ships. Become a new hot spot in the market.

In July, the number of new global contracts dropped by 13.37% from the previous month to 122 ships, of which 34 were bulk carriers, the same as container ships in number. In the first half of this year, the number of orders for 324 container ships was far ahead of the 130 bulk carriers.

Compared with the market trend, shipbuilding companies are now more concerned about whether the signed orders can maintain profitability.

"Whether the price increase of steel is transmitted to end users depends on the market." China Shipbuilding said at a business conference held in May that the price increase of steel plates used in shipbuilding is higher than the price increase of new ships.

A person from a state-owned shipbuilding enterprise explained to reporters that due to the time lag between signing and exercising the option of new shipbuilding orders, in the case of rapid increase in commodity prices in the first half of this year, the initial contracted cost may have to cover higher costs. Ship prices must be increased, otherwise the costs will be uncontrollable. This year's steel and copper prices will go up too much."

The China Shipbuilding Industry Association stated that the price of marine materials in the first half of this year hit a record high in nearly 10 years. Among them, the price per ton of 6mm and 20mm shipbuilding boards reached 7,590 yuan and 7,120 yuan, up by more than 70% year-on-year, and marine cables rose 56.5% year-on-year to 76,900 yuan/ton. Even though steel prices have fallen recently, they still remain at a high level of 6,000 yuan/ton. Calculated at this price, the raw material procurement cost of domestic shipbuilding companies will increase by more than 40% over last year. "It is extremely challenging for most shipbuilding companies to maintain profitability with orders."

In fact, South Korea’s three major shipbuilding companies—Korea Shipbuilding & Marine, Daewoo Shipbuilding and Samsung Heavy Industries, Ltd. expect that marine thick plates will rise sharply in the second half of this year. They have accrued US$769 million and 3.19 respectively in their recent second-quarter results. The engineering loss reserves of US$ 687 million and US$ 687 million resulted in large losses in a single quarter.

It is worth noting that the surge in orders and rising prices are expected to cause related listed companies in the upstream of the industrial chain to "boost in volume and price."

Tan Naifen, deputy secretary general of the China State Shipbuilding Industry Association, expressed in an interview with reporters that he hoped that the steel industry would pay more attention to green ship-type steel, such as high-strength anti-crack steel plates for large container ships. At present, domestic shipbuilding companies that have undertaken large-scale container ship orders have purchased bulk anti-crack steels for large-scale container ships developed by Baosteel Co., Ltd. and Nanjing Iron and Steel Co., Ltd. Among them, the 100 mm thick anti-crack steel plate developed by Nangang Co., Ltd. has passed the certification of 7 national classification societies.