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Thursday 24 September 2009
Shipbuilders become ship breakers to remain afloat
Ren Yuanlin, the chairman of Yangzijiang Shipyard, said the nation’s sixth-largest shipyard could earn much more money from scrapping ships than building them.
Shipbuilders become ship breakers to remain afloat
Mainland yards change course as demand for vessels plunges
Charlotte So 23 September 2009
Mainland shipyards that grew rich building some of the biggest vessels in the world are turning to scrapping ships to make ends meet.
When China overtook Japan as the second-largest shipbuilding nation in 2006, a new industrial age beckoned. Now workers in those yards could be standing idly in the future as order books shrink.
Ren Yuanlin, the chairman of Yangzijiang Shipyard, said the nation’s sixth-largest shipyard could earn much more money from scrapping ships than building them.
Unlike shipyards that need dry docks, steel plate cutting lines and depots for storage, scrapping requires less land and labour.
New ship orders on the mainland dropped 78 per cent year on year in the first seven months of the year to 7.87 million deadweight tonnes while outstanding orders fell for the 10th consecutive month to July.
“Scrapping a vessel is just the reverse of building a vessel, but with lower technology requirements,” Ren said.
The profit margin from scrapping vessels ranges from 20 to 30 per cent while that for new orders is almost zero.
Other shipbuilders around the world have received barely any new orders since the fourth quarter of last year as sluggish global trade cuts demand for the giant vessels that transport goods across the oceans.
Globally, new orders for bulk vessels dropped 97 per cent year on year in the first half while there were no new orders for container ships in the period. About 10 per cent of the global container fleet is idle.
With the mainland increasingly reliant on global trade, the downturn has been particularly hard felt there. Production of vessels on the mainland in 2007 was 6.4 times that of 2000 and 25 times that of 1990.
Last year, mainland shipyards completed 28.81 million dwt of vessels, up 21.8 per cent from 2007.
However, while they still have enough work to keep them busy for now, the good years could be coming to a rapid end.
Welder Gao, 32, enjoys his shipyard job because it is stable and pays well. Despite the fact that his 13 years behind the strong flare of a welding torch has made him appear 10 years older, he has never thought of quitting his job.
Gao earns more than 3,000 yuan (HK$3,405) a month, three times more than the average salary in his hometown of Yancheng. While he is not bothered by the downturn in the shipbuilding industry, for workers like him, storm clouds are gathering.
There are still abundant ship orders in most mainland shipyards, with backlogs of up to three years.
However, concerns about the fragility of the global economy have made banks tighten credit to the shipbuilding industry. Freight rates in container and bulk vessels are still very weak.
To add to the shipyards’ woes, shipowners have been requesting a reduction in contracted ship prices and delay in the delivery of vessels because of a free fall in shipping rates.
Ren is bracing for more difficulties. Yangzijiang Shipyard is negotiating with buyers over the cost of new bulk vessels, which are down 20 to 30 per cent from last year.
The new orders would mean no profit or a barely break-even position for the shipyard, Ren said.
In a normal year, the margin for shipbuilding would be about 20 per cent.
All the potential new orders were scheduled to be delivered next year to absorb the extra capacity in the dock and help lower the fixed cost of existing ship orders, Ren said. Yangzijiang Shipyard has accepted delays in delivering 18 vessels and has an order backlog of 139 ships.
“The shipbuilding industry has yet to pass the trough as new ship prices are at extremely low levels at present,” Ren said.
The container vessel market was much worse than that of bulk vessels as no orders had been taken for that vessel type even though the price had been halved. It would take at least a year for ship prices to get back to normal, Ren said.
Since shipyards have given in to demands to lower vessel prices, they are starting to negotiate new terms with suppliers ranging from the producers of hatch covers, pipes, engines and navigation systems.
Yangzijiang Shipyard is set to form a joint venture to expand the scale of the ship-scrapping business.
However, Beijing has stringent requirements for new ship-scrapping yards because of the environmental hazards.
Any applicant is required to take a series of measures to minimise the pollution generated during the scrapping process before being granted permission.
In the meantime, Ren is hoping for an upturn in the global economy so his ships can continue putting to sea.
2 comments:
Shipbuilders become ship breakers to remain afloat
Mainland yards change course as demand for vessels plunges
Charlotte So
23 September 2009
Mainland shipyards that grew rich building some of the biggest vessels in the world are turning to scrapping ships to make ends meet.
When China overtook Japan as the second-largest shipbuilding nation in 2006, a new industrial age beckoned. Now workers in those yards could be standing idly in the future as order books shrink.
Ren Yuanlin, the chairman of Yangzijiang Shipyard, said the nation’s sixth-largest shipyard could earn much more money from scrapping ships than building them.
Unlike shipyards that need dry docks, steel plate cutting lines and depots for storage, scrapping requires less land and labour.
New ship orders on the mainland dropped 78 per cent year on year in the first seven months of the year to 7.87 million deadweight tonnes while outstanding orders fell for the 10th consecutive month to July.
“Scrapping a vessel is just the reverse of building a vessel, but with lower technology requirements,” Ren said.
The profit margin from scrapping vessels ranges from 20 to 30 per cent while that for new orders is almost zero.
Other shipbuilders around the world have received barely any new orders since the fourth quarter of last year as sluggish global trade cuts demand for the giant vessels that transport goods across the oceans.
Globally, new orders for bulk vessels dropped 97 per cent year on year in the first half while there were no new orders for container ships in the period. About 10 per cent of the global container fleet is idle.
With the mainland increasingly reliant on global trade, the downturn has been particularly hard felt there. Production of vessels on the mainland in 2007 was 6.4 times that of 2000 and 25 times that of 1990.
Last year, mainland shipyards completed 28.81 million dwt of vessels, up 21.8 per cent from 2007.
However, while they still have enough work to keep them busy for now, the good years could be coming to a rapid end.
Welder Gao, 32, enjoys his shipyard job because it is stable and pays well. Despite the fact that his 13 years behind the strong flare of a welding torch has made him appear 10 years older, he has never thought of quitting his job.
Gao earns more than 3,000 yuan (HK$3,405) a month, three times more than the average salary in his hometown of Yancheng. While he is not bothered by the downturn in the shipbuilding industry, for workers like him, storm clouds are gathering.
There are still abundant ship orders in most mainland shipyards, with backlogs of up to three years.
However, concerns about the fragility of the global economy have made banks tighten credit to the shipbuilding industry. Freight rates in container and bulk vessels are still very weak.
To add to the shipyards’ woes, shipowners have been requesting a reduction in contracted ship prices and delay in the delivery of vessels because of a free fall in shipping rates.
Ren is bracing for more difficulties. Yangzijiang Shipyard is negotiating with buyers over the cost of new bulk vessels, which are down 20 to 30 per cent from last year.
The new orders would mean no profit or a barely break-even position for the shipyard, Ren said.
In a normal year, the margin for shipbuilding would be about 20 per cent.
All the potential new orders were scheduled to be delivered next year to absorb the extra capacity in the dock and help lower the fixed cost of existing ship orders, Ren said. Yangzijiang Shipyard has accepted delays in delivering 18 vessels and has an order backlog of 139 ships.
“The shipbuilding industry has yet to pass the trough as new ship prices are at extremely low levels at present,” Ren said.
The container vessel market was much worse than that of bulk vessels as no orders had been taken for that vessel type even though the price had been halved. It would take at least a year for ship prices to get back to normal, Ren said.
Since shipyards have given in to demands to lower vessel prices, they are starting to negotiate new terms with suppliers ranging from the producers of hatch covers, pipes, engines and navigation systems.
Yangzijiang Shipyard is set to form a joint venture to expand the scale of the ship-scrapping business.
However, Beijing has stringent requirements for new ship-scrapping yards because of the environmental hazards.
Any applicant is required to take a series of measures to minimise the pollution generated during the scrapping process before being granted permission.
In the meantime, Ren is hoping for an upturn in the global economy so his ships can continue putting to sea.
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