China Shipbuilding
A Tough 2012 Is Behind, but
More Challenges Remain for
Chinese Shipyards in 2013
We maintain our cautious industry view in 2013 –
most Chinese shipyards’ earnings are likely to
deteriorate further. Low bases are likely to provide
easier YoY comparisons for new orders in 2H13, but
serious overcapacity makes it too early to conclude
that the industry could be recovering.
China’s new orders slumped 45% to 19 mn DWT in
2012: That was in line with global new orders, which
shrank by 45% from 82 mn DWT in 2011 to 46 mn in
2012. By vessel segment, containership and dry bulk
new orders dropped 76% and 55% in 2012, while tanker
new ordesr recovered by 24%, mainly thanks to
counter-cyclical fleet expansion by industry giants, such
as BP, Kuwait Oil Tanker, China COSCO and
Fredriksen.
New-building prices have declined further despite
the recent rise of steel costs: The new-building price
index declined 9.4% from 139 in 2011 to 126 in 2012.
Handysize tankers were the best performer (down only
4%); 3,500 TEU containerships showed the worst price
performance (down 26%). Despite the recent rally in
steel prices, new-building prices have kept dropping in
the past two months – implying more margin pressure in
2013.
We believe Chinese shipyards’ earnings are likely to
deteriorate further in 2013: We cite four factors 1)
new-building prices are dropping continuously; 2)
capacity utilization will decline further with fewer
shipbuilding tasks; 3) labor costs are higher, and 4)
there are continuous delivery delays. We expect the six
Chinese shipyards under our coverage to report an
average earnings drop of 39% in 2013 and another 38%
in 2014. Our estimates have already been skewed to the
negative side vs. consensus, but we think there are still
downside risks to our estimates if new orders or
new-building prices fall further from the current levels.