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2017 China Shipbuilding Industry: Aboard or abort the ship?

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In 2016, three major indictors of shipbuilding had a significant drop and profits of relevant enterprises slumped due to the lasting downturn of shipping industry. According to Research Cosmos, in 2016, national shipbuilding completion amount was 35.32 million DWTs, down by 15.6% YOY; new orders of ships were 21.07 million DWTs, down by 32.6% YOY; up to the end of Dec, 2016, handheld ship orders were 99.61 million DWTs, down by 19% YOY. 

From Jan to Nov, 2016, profits of shipbuilding industry enterprises above the nationwide scale are CNY 14.74 billion, down by 1.9% YOY. In 2016, trading volume of new ships dropped sharply by 67% YOY, and at the end of the year, holding orders of global shipbuilding enterprises decreased by 25% YOY compared to the end of 2015. Holding orders continue to decline and enterprises are faced with working under capacity and increasing pressure. In 2016, new ship market suffered from severe insufficiency of efficient demand and ship enterprises had more and more difficulties to receive new orders. 

Globally speaking, the proportion of ship enterprises which received new orders is only 34% of all active ship enterprises while that portion of domestic ship enterprises is 41%. Most ship enterprises still cannot receive enough orders while experiencing the decline of holding orders, and there are more and more empty slipways as time goes by. By the number of holding orders and actual capacity, national guaranteed order ratio drops back to the level in 2015. 

Ship enterprises experiences inadequacy of operating ships and production sustains severe challenges. On account of lasting poor business performance of partial ship-owners, ship enterprises are obviously going though problems to deliver vessels. According to statistics, by the end of 2016, domestic ship enterprises' ratio of deliver on schedule is only 80% because of contract changing of ship-owners, backordered, cancellation of orders and other factors. Production plan cannot be finished on time and production schedule cannot be managed efficiently. 

At present, ocean engineering equipment market is under great depression. Utilization of ocean engineering equipment in market decreases sharply; a large quantity of orders is backordered, and some even withdraw or cancel orders; systematic risk is gradually increasing. Ocean engineering equipment market has to face it as utmost urgency. Besides, in recent years, relevant national departments have published many guidelines on financial support for shipping industry to lead banking financial institutions to provide credit loans for high-quality shipping enterprises to help them through. 

Meanwhile, active mergers and reorganizations exist in the industry. For instance, COSCO Group founded COSCO Shipbuilding Heavy Industry Co., Ltd. by integrating 13 large shipbuilding factories and over 20 supporting service companies; Integrations and reorganizations between CSIC Dalian Shipbuilding and Shanhaiguan Shipbuilding, Wuhan Shipbuilding and Beihai Shipbuilding, Fengfan and Torchbat Energy, Chongqing Hongjiang and Chongyue were forging ahead steadily .

Therefore, Research Cosmos believes that China still has great competitive advantage over South Korea and Japan in shipbuilding. China shipbuilding industry is moving forward in downturn and is expected to regain its vitality by mergers and acquisitions.

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