China's shipbuilding sector must consolidate to stay competitive: official
China's troubled shipbuilding sector must embrace painful measures and cut shipbuilding capacity by at least 30% to remain competitive amid plummeting utilization rates, a shipping industry expert said at the World Shipping Summit in Ningbo Wednesday.
"The growth rate in the demand for new ships is slowing down. This year is really bad, and I can feel the impact. Chinese shipyards have to reduce overcapacity," Bao Zhangjiang, director of the China Shipbuilding Industry Research Center, told the conference, organized by shipowner Cosco.
"Realignment of the Chinese shipbuilding industry is the crucial need of the hour, and we need the courage to eliminate the excess capacity," Bao added. "There should be a competitive transformation of the industry."
Bao said China's shipbuilding industry helped tide over the global market in the mid-2000s when higher oil and dry commodity demand created a shortage of new ships. That translated into huge shipping requirements for China.
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"During the heydays of the shipping market, there had been an influx of new shipbuilding capacity, which when combined with the severe demand destruction during the global financial crisis, has led to a situation of capacity overhang in the short term," he said.
Bao expects global demand for shipbuilding to be 32 million compensated gross tonnage, or CGT, in the next two years, compared with current world capacity of 61.2 million CGT.
"The current imbalance between supply and demand will last for quite some time," he said.
CGT is an indicator of the amount of work needed to build a given ship. It is calculated by multiplying the ship's tonnage by a coefficient, which is determined according to type and size of the particular vessel.
Bao said one factor that will keep Chinese shipyards competitive is a focus on quality above quantity. He said the Chinese government was reworking the industry structure document to realign the business with that goal in mind.
"We are mainly involved in building dry-bulk ships, which are low-end vessels," he said. "We want to move from being a shipbuilding country to shipbuilding power. We will streamline our capacity, and this will mark the second stage of the Chinese shipbuilding industry."
Bao expects many mergers and acquisitions in the industry.
Chinese shipyards have already started reworking their strategies, with cash-strapped ones already tying up for additional capital.
For instance, China Rongsheng Heavy Industries Group Holdings Ltd. was in talks with two coastal cities and government departments in May to secure financial assistance after the nation's shipowners association forecast a slump in vessel orders through next year. The country's largest independent shipyard was in discussions with the cities of Rugao and Nantong.
COSCO (Lianyungang) Shipyard Co. Ltd. -- a joint venture of Jiangsu Lianyungang Port Corp. Ltd. and COSCO Shipyard Group Co. Ltd. -- was set to be dissolved after steep losses of Yuan 30.28 million ($4.93 million) in 2011 and Yuan 80.98 million in 2012. The joint venture was created in early 2008 with a registered capital of Yuan 180 million.
In May, China Rongsheng Heavy Industries Group Holdings Chairman Chen Qiang doubted whether many among the more than 100 shipbuilders would survive but said the chances were brighter for the top 20 yards. Orders for new ships tumbled 43.6% last year to 20.41 million dmt in China, according to data from the Chinese Ministry of Industry and Information Technology.
Figures released in June by shipbroker Clarkson showed that China's shipyards secured contracts for just 182 ships in the first six months of this year, compared to 561 vessels a year earlier.
Although China saw a 52% drop in orders for new ships in 2011 from levels seen in 2007, it was still the world's largest shipbuilder, accounting for 41% of the global share.
According to a Singapore-based sales and purchase broker, China has some 350 shipyards that are actively in business. An estimated 2,000 yards are currently operational in China. Beijing is targeting the inclusion of five Chinese shipyards among the top 10 in the world by 2015
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