Wednesday, February 1, 2017

Phony Numbers In Chinese Shipyards

From Splash 24/7:
Dr Adam Kent from Maritime Strategies International posits that as much as one third of the Chinese ship orderbook could be fictitious.

The shipyard capacity conundrum is one which is facing all ship sectors and has multiple facets. How accurate is the orderbook? What will future shipbuilding look like? When will it make sense to order newbuildings and can the yards survive until then?

The sector’s problems can be traced to the accession of China to the WTO in 2001 and the ‘perfect storm’ of contracting which followed. Records tumbled year after year in main and specialised sectors as capacity and output expanded massively.

In the decade to 2010 shipyard capacity increased from 20m cgt to over 50m cgt, primarily driven by China where yard numbers grew from 25 to almost 200 by 2007 and South Korea which witnessed massive yard expansion.

By 2016 the story was different: orders had dropped significantly and yards were failing, restructuring and laying off tens of thousands of workers as levels of contracting fell. A quick look at the orderbook shows that some shipyards took their last contracts over 10 quarters ago and are fast coming to the end of their orderbooks.

In South Korea, deliveries have been stable, with a steady output of approximately 12m cgt per annum over the last three years. Based on scheduled deliveries this will carry on in 2017, before collapsing in 2018 to close to 25% of recent levels.

In China, approximately 11m cgt has been delivered annually in the past three years but 2017 scheduled deliveries are for 17m cgt – head and shoulders above actuals for the last three years.
Some 12 months ago, China was expecting to deliver 20m cgt, though we saw just over 10m cgt of merchant shipping delivered. Even allowing for some slippage from current levels, we are once again witnessing a ‘phantom orderbook’ which is pushed further and further out every year and which will never materialise.

These ships – the majority of which were contracted in 2013, when the world was a very different place – didn’t show up in 2016 and seem unlikely to 2017. The recurring nightmare for owners is that the majority are bulk carriers; more than enough to derail any hint of recovery.
In fact, MSI believes that over a third of the Chinese orderbook is in effect fictitious and will never hit the water. This means that the yards have a lot of berth space available from 2018 onwards. A look at what was ordered in Q4 2016 supports this view with the majority of ships recorded as having delivery dates of 12-18 months ahead.....MUCH MORE