Inevitable consolidation for Chinas shipbuilders

The China Daily has reported that China?s shipbuilding industry, which last year suffered its steepest annual decline since 2003, is likely to be squeezed further this year by shrinking order books and order cancellations as the global economy remains in recession.

The industry, the world?s second largest by capacity, will see more small shipyards swallowed by big players as mergers and acquisitions are expected to pick up pace this year. According to UK-based Clarkson Research Services, Chinese shipyards saw their orders plunge 40.9%YoY in 2008 to 58.18 DWT against an average global fall of 43.2%.

The China Association of the National Shipbuilding Industry said in its latest report that shipyards worldwide will see orders further plunge to 40 to 60 million DWT in 2009, while the new orders Chinese shipyards receive is likely to drop to 20 million to 30 million DWT a 48.4% to 65.6% fall form a year earlier. Ye Zhigang, analyst with Haitong Securities, said in a report that 15% to 25% of Chinese yards? orders or 300 million DWT to 500 million DWT are likely to be cancelled over the next three years, five percentage points higher than the global average. He said that the industry will remain in depression during the next three years and another period of growth will come after 2013.

Earlier this month the Chinese government approved a stimulus package for the country’s shipbuilding industry, after similar plans for the auto, steel and textile industries. The stimulus package includes support in financial credit and technology upgrades, new capacity control as well as encouragement of mergers and acquisitions within the industry. No new yards will be allowed in China for the next three years.

Shi Weidon, board secretary of CSSC, said China State Shipbuilding Co Ltd, one of the country’s largest shipbuilders, is now considering offering discounts to its clients to avoid order cancellation. Zhang Jincan, an analyst at Guotai Junan Securities said, “The number of shipyards in China is sure to decrease over the next few years. Some small private yards will go bankrupt, while more mergers and acquisitions will take place, but is hard to predict the scale of this.”