Newcomer undercutting prices

A new Chinese shipyard is attempting to win newbuilding contracts by selling ships at heavily discounted prices. Jiangsu-based People Heavy Industry (PHI) is ready to start ship construction in the summer at its new facility and has opened contract negotiations with owners.

It is focussing on the Capesize market and is said to be quoting a little over $62m for a 180,000 DWT bulker with delivery in 2011. London broker Clarkson estimates the price of a Capesize newbuilding to be around $72m. However, with the oversupply of ships in the market and lack of financing, there have been no Capesize-newbuilding contracts sealed since last autumn when prices peaked at $110m.

A PHI executive says the yard is hungry for orders and is in contact with several owners. “We want to build bulkers up to 180,000 DWT and tankers below 30,000 DWT,” he added. “It will take us one or two years to finish building the shipyard’s facilities but we can do that and carry out the construction of the newbuildings simultaneously.” But brokers have described the move as a “high-risk strategy”, as in the current market owners are keener to get out of contracts than to add new ones.

They believe it will be difficult for PHI to break into the market in the current climate and point out there are plenty of examples of greenfield Chinese and South Korean shipbuilders coming to grief through discounting. One broker said: “There are order talks taking place now but these are just enquiries. We do not think owners are serious about signing up for new ships.” Others think it is unlikely owners will be persuaded by the yard’s price strategy. “It is a new shipyard in a depressed market. No one will be interested in ordering ships because they can always turn to the resale market,” one said.

In contrast, China’s established yards are keen to keep new contract prices up to help them resist calls from owner clients to reduce order prices. They also need to cover higher production costs. According to PHI’s website, the total investment in the yard will amount to CNY 2.096bn ($306.6m). The yard will cover 81.04 hectares and be equipped with two dry docks of 70,000 DWT and two slipways of 50,000 DWT. It is targeting sales of CNY 5.026bn annually.

The new yard is understood to be a part of Zhejiang-based electrical-production company People Alliance group, one of the top 500 companies in China. The market perception of PHI is that it is new to shipbuilding and has probably hired in expert help to get the project off the ground.