Wednesday, November 9, 2011

hina shipyards in troubled waters as orders dry up

HONG KONG (Nov 9): China's shipbuilding industry, the world's largest by capacity, is struggling, with some smaller shipyards on the brink of bankruptcy as orders dry up amid global economic uncertainties.

New orders of China's more than 2,000 shipyards plunged 43 percent to 29 million deadweight tonnes (dwt) in the first nine months of this year, China Association of the National Shipbuilding Industry (CANSI) said.

And one third of Chinese shipbuilders did not receive any new orders in the period, it said in a report seen by Reuters this week.

"Some small- to medium-sized shipyards have suspended production," CANSI said, adding that there were no signs that demand would improve in the last quarter of the year.

Globally, many shipbuilders are not faring well because of overcapacity, which is being worsened by the economic problems in the United States and Europe.

But the Chinese shipbuilding industry's woes are more acute.

Shipbuilding capacity in the world has tripled since 2002, right before a 5-year industry boom, and most of the new capacity was added in China -- which aims to become the top shipbuilding nation in 2015.

The world's shipping industry, a bellwether of economic activity because of its role in world trade, is experiencing a downturn that some industry officials and analysts say is even worse than during the 2008 financial crisis.


Bigger Chinese shipyards, which are also suffering falling orders, should be able to survive the economic downturn because they are capable of making technologically advanced vessels such as those with strong fuel efficiency, analysts said.

Last month, China Shipping Container Lines Co Ltd ordered eight container vessels for a total of $754 million from units of the country's two biggest state-owned shipbuilders.

The two groups, China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corp (CSIC), account for about one-third of the country's total order book.

Smaller yards will be more vulnerable as they lack TECHNOLOGY [] and funding, analysts said.

"This will mean that the top tier Chinese yards are potentially in the game," said Matthew Flynn, managing director of Worldyards, an Asian shipbuilding consultancy.

"The lower-tier Chinese yards, which are not able to deliver better fuel-efficient and higher-quality vessels, are really not going to be in the game," he said.

Chinese media have reported that some small domestic shipyards, including many in the southeastern city of Taizhou, were on the verge of bankruptcy amid a severe industry glut and falling orders.

Nantong Qiya Ship Engineering Co Ltd and Nantong Huigang Shipbuilding Co Ltd in the eastern city of Nantong are struggling, with Qiya filing for bankruptcy earlier this year, Chinese media reported.

A local industry confirmed to Reuters that Qiya had filed for bankruptcy last month.

A Huigang employee told Reuters by phone that the company had not filed for bankruptcy, but she declined to give further details.


Shares of Chinese shipyards listed in Hong Kong, Singapore and Shanghai have fallen sharply this year due to pessimism over the industry's outlook.

China CSSC Holdings , a unit of China State Shipbuilding Corporation, Yangzijiang Shipbuilding (Holdings) , COSCO Corp and China Rongsheng Heavy Industries Group have seen their shares fall 18 to 61 percent this year.

"We are generally negative on the shipping and shipbuilding industry, which is closely related to the global economy," said Winnie Guo, an analyst at CCB International, adding that those with strong financial backing like Rongsheng should do better.

Founded in 2005, Rongsheng is the country's largest privately controlled shipbuilder. It secured a credit line of 35 billion yuan ($5.5 billion) in September from China Development Bank. - Reuters

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