Chinese shipyards in trouble

The announcement end December by China’s biggest shipbuilder China Rongsheng Heavy Industries - that it expects to incur a net loss in 2012- has left many analysts with eggs on their faces; earlier estimates had said that the company would show a $93.76 net profit for the year, according to a poll then conducted by Thomson Reuters. More importantly, however, Rongsheng’s statement that falling orders and prices are responsible for the financial woes indicates that worse is to follow for Asian shipyards. Rongsheng’s shares promptly fell seven and a half per cent after the announcement, and Citi Research, amongst others, is recommending investors stay away.

Some analysts have said earlier that Rongsheng was particularly at risk, given that its largest customer- Vale- was facing problems of its own, with its Very Large Ore Carrier’s effectively banned from Chinese ports. Vale is said to be trying to sort out that problem, but the bigger issue, according to experts, is that the market is collapsing. New build orders have plunged 59% in the first half of 2012 compared to the same period a year earlier, and the second half has not been much better. The situation has been exacerbated by state owned shipyards in China who have so far not reduced shipbuilding activity in the country. 

Warnings persist that orders for newbuilds could remain depressed for “several years” because of “severe excesses capacity” that exists as a result of the orders placed between 2006 and 2008. Also, the global shipping fleet has grown, thanks to earlier over-ordering of ships, by around 10% in 2012. This is a figure that is more than twice the rate of growth in seaborne trade, says Citi Research. 

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