China Winning Big-Ship Deal May Threaten South Korea Grip: Freight Markets
Yangzijiang Shipbuilding Holdings Ltd. (YZJ) may become the first Chinese yard to win an overseas order for 10,000-container vessels as the Asian nation challenges South Korea’s dominance in building more profitable types of ships.
The shipbuilder is in discussions with Seaspan Corp. (SSW) on an order, it said by e-mail yesterday without elaboration. Hong Kong-based lessor Seaspan said in a filing earlier this month that it had signed a letter of intent for a “significant number” of 10,000-box ships with a Chinese yard it didn’t name.
Yangzijiang, Cosco Corp. Singapore Ltd. and China Rongsheng Heavy Industry Group Co., the largest Chinese shipbuilders listed overseas, have begun targeting orders for container, liquefied-natural gas and car-carrying ships as a glut of dry- bulk vessels saps demand for Chinese yards’ mainstay products. The push may mean more competition for South Korean shipbuilders including Hyundai Heavy Industries Co. and Samsung Heavy Industries Co., the world’s biggest.
“The only things it takes to move up the shipbuilding learning curve are engineers, financing and time,” said Jon Windham, a Barclays Capital analyst in Hong Kong. “China has all three of those in spades.”
Chinese shipyards have traditionally focused on building dry-bulk vessels, used to carry iron ore, coal and other commodities, as they are less complex than container carriers or tankers. Global orders for these types of ships, about half of which are built in China, plunged 73 percent to $2.3 billion in the first quarter, according to shipbroker Clarkson Plc.
Shipping lines have pared dry-bulk orders as the Baltic Dry Index, the benchmark for commodity-shipping costs, has plunged about 67 percent in a year on overcapacity. The existing global order backlog is also about 46 percent the size of the in- service fleet, according to Clarkson.
China’s government contributed to the commodity-vessel glut by giving out financing for ships during the global financial crisis to help prop up local yards and secure jobs. The country has about 3,000 shipbuilders, including roughly 1,000 able to build ships that can travel in deep seas, according to Henry Mytton-Mills, managing director at Aries Shipbroking (Asia) Pte in Singapore.
“That’s seriously scary,” he said. “It’s bigger than the rest of the world’s capacity put together many times over.”
Chinese shipyards have orders for 134 million deadweight tons of dry-bulk vessels, more than double their backlog for other types of ships, according to Clarkson data.
China’s bigger shipbuilders plan to make more sophisticated vessels to escape the capacity glut and because they attract higher prices. New vessels able to carry 9,600 boxes cost $118 million, about double the price for capesize dry-bulk ships, the biggest component of Chinese yards’ orderbooks by tonnage, according to Clarkson.
Yangzijiang plans to invest 4 billion yuan ($615 million) in a yard in Jiangsu province, southern China, that will eventually be able to build the equivalent of 10 very large crude carriers or 12 10,000-container ships a year to support its expansion into larger vessels.
The shipbuilder delivered 17 vessels from its three existing yards in the first quarter. It had orders for 45 container ships at the end of March, the biggest of which will be able to haul 4,800 boxes. It also had 86 dry-bulk orders.
The company has jumped 33 percent in Singapore trading in the past year, outperforming a 10 percent gain for the benchmark Straits Times Index.
Cosco Singapore, part of China’s largest shipping group, this year delivered its first 5,000-car vessel, first shuttle tanker and first ship for installing turbines at offshore wind farms. Parent China Ocean Shipping (Group) Co.’s venture in Nantong with Kobe, Japan-based Kawasaki Heavy Industries Ltd. has orders for eight 13,500-container vessels from another unit of the state-controlled shipping group. Deliveries are due to start next year, according to Clarkson.
Rongsheng Heavy, China’s largest shipbuilder not under state control, is due to deliver its first offshore vessel, a deepwater pipe-laying crane ship, to China National Offshore Oil Corp. this year. The company is working with Gaztransport & Technigaz SAS and STX France SA on developing LNG vessels.
“Chinese shipyards have been trying to strengthen their skills to reduce their reliance on building bulk ships,” said Lee Sokje, an analyst at Mirae Securities Co. in Seoul. “It’s not going to be easy for them because these things can’t happen overnight.”
South Korean yards hold about 94 percent of global orders for ships able to carry more than 10,000 containers, according to Clarkson. They also have a 65 percent share for LNG tankers and 51 percent of crude tankers.
Chinese shipyards may have to overcome concerns about delays to win orders for new products. Rongsheng Heavy, for instance, may only deliver as few as three very large ore carriers this year, compared with the eight anticipated in its 2010 initial public offering prospectus, because construction is behind schedule, according to Barclays Capital.
No one was available for comment at Shanghai-based Rongsheng Heavy when Bloomberg News called yesterday.
Vale SA (VALE), Brazil’s largest iron-ore miner, has ordered a total of 19 VLOCs from Rongsheng Heavy and Seoul-based Daewoo Shipbuilding & Marine Engineering Co., according to Clarkson data. Daewoo delivered the first of the seven VLOCs it’s building in March, a month ahead of schedule.
“South Korean shipyards have a very good track record of being on time or ahead of schedule,” said Cho In Karp, head of research at Heungkuk Securities Co. in Seoul. “Some shipping companies are willing to pay more because they know Koreans are reliable.”
Korean shipbuilders still maintain a technology edge that enables them to build ships beyond the scope of Chinese shipbuilders, Cho said. Daewoo won an order from A.P. Moller- Maersk A/S in February to build as many as 30 ships able to carry 18,000 containers each, which will be the largest cargo- box ships afloat. The contract will be worth as much as $5.4 billion.
“There is no question that the Chinese will eventually catch up to the Koreans in high-end products,” Lee said. “But, they have to address reliability issues before global shipping lines will feel confident placing billion-dollar orders with them.”
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