Newbuild prices drop despite rise in steel

According to Lloyds List, analysts believe the price of Chinese newbuildings will continue to decline in the second half of this year despite a 33% surge in the country’s steel price between April and June.

The China Iron and Steel Association earlier reported that the country’s 71 large and medium steel producers recorded a profit in June for the first time in six months. The association attributed the rebound to producers significantly increasing the price of steel.

Umetal.com steel analyst Cai Jiangwu said that price of medium plate, which is used in shipbuilding, jumped from Yuan3,000 ($441) per ton to Yuan4,000 per ton between April and June. However, China State Shipbuilding Corp research centre analyst Zhang Changtao said the price of newbuildings would continue to fall over the next six months despite the rise in plate prices.

“The steel price is still hovering at a relatively low level compared with the Yuan7,000 and Yuan8,000 range it was at in early 2008,” he said. Zhang also noted that the bargaining power of shipyards remained weak. “Shipbuilders are reluctant to transfer the steel cost to their customers. Instead, they are more likely to slash newbuilding prices in face of the weakening demand.”

Steel industry analysts said the steel price was unlikely to remain at its current level.

Cai said overcapacity in the Chinese steel industry was at a very serious level as steel factories had significantly boosted production last year. Given the oversupply of steel, producers would not be able to keep pushing up the price.

A spokeswoman for the China Association of the National Shipbuilding Industry predicted newbuilding prices would drop further by the end of the year due to the lack of demand. “Most of the shipowners have no intention to extend the size of their fleets,” she said.