China moves to reopen shuttered yards

China moves to reopen shuttered yards

News today that a deal has been brokered to save part of Sinopacific Shipbuilding has some owners on edge that China is readying to reopen a swathe of shuttered yards potentially prolonging shipping’s longstanding overcapacity issues.

SUMEC Group, a machinery manufacturer based in Jiangsu, confirmed today that it would join the restructuring of Yangzhou Dayang Shipbuilding, the bankrupt yard of Sinopacific Shipbuilding. Dayang becomes the third yard this year to be rescued and rescucitated, joining Jiangzhou Union and Qingdao Yangfan with sources in China telling Splash that a number of other facilties are being readied for reopening.

China is the world’s largest shipbuilding nation in terms of orderbook, but has seen a massive contraction in the number of yards since the global financial crisis kicked in a decade ago.

Data from VesselsValue shows China has seen a marked reduction in the number of yards delivering vessels, down 55% from 239 yards in 2010 to only 108 yards in 2017. However, so far in 2018, 143 individual Chinese yards have delivered vessels, a marked increase over last year.

Dr Roar Adland, shipping chair professor at the Norwegian School of Economics, told Splash that the fact yards were reopening was a sign that the markets are working as they should. He did predict however that the news from China will likely keep a lid on newbuild prices in the long run.

China turning its yard capacity tap back on comes as its biggest shipbuilding rival is making a comeback. South Korean shipyards returned to the world’s top rank in securing new orders for the first half after lagging behind Chinese competitors for the last three years.

According to Clarkson Research Services, Korean shipbuilders clinched deals to build a combined 115 vessels equal to 4.96m compensated gross tonnage (cgt) in the first six months of this year, with China managing 4.39m cgt. China still has the largest backlog by some distance however with 28.25m cgt, followed by Korea with 17.38m cgt.

Martin Rowe, a broker with Clarkson Platou in Hong Kong, questioned just how many yards would actually reopen.

“For the time being existing quality yards are not exactly being inundated with orders,” he observed, adding: “Additionally many of the shuttered Chinese yards may not be physically capable of being re-opening, having been built in haste without proper foundations and where construction of ships sometimes started before the concrete had set.”

Ralph Leszczynski, global head of research at Banchero Costa Group, observed that many yards in China had not been closed, rather they had been mothballed.

“Newbuilding prices are rising, so this puts some yards back in the money,” Leszczynski said. Capesizes, for instance, have leapt in price from $42m to $48m over the past 12 months.

Leszczynski also pointed towards the recently announced ban on importing vessels which are not Tier 2 engine – i.e. any built before 2011 – suggesting that means that China will rely more on domestic newbuildings rather than imported secondhand tonnage for its domestic trades.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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