Shipbuilding sector continues its recovery

China's shipbuilding sector experienced a strong momentum in the first three quarters of this year with growth in both completed orders and new orders, according to data released by the China Association of the National Shipbuilding Industry.

Chinese shipyards executed orders amounting to 35.15 million dead weight metric tons in the first nine months, up 41 percent year-on-year, while they received 20.13 million DWT of new ship orders, an 8.7 percent increase from the same period a year earlier, statistics from Beijing-based CANSI show.

Total revenue of China's shipbuilding industry reached 212.5 billion yuan ($32 billion), with net profit totaling 1.1 billion yuan during the January-September period.

The Baltic Dry Index, a barometer of global bulk shipping business climbed to 1,566 points on Oct 18, a new high since March 2014.

Since August this year, BDI, which measures the shipping fees of dry cargo such as iron ore, cement, grain and coal, has stayed above the 1,000-point threshold, indicating strong demand for raw materials and therefore more need for shipping services.

Large demand for dry cargo like iron ore boosted the development of the bulk cargo ship sector, whose orders plummeted from 1,953 in 2007 to 55 in 2016, with capacity decreasing by 91 percent.

Dalian COSCO KHI Ship Engineering Co Ltd, a joint venture between China COSCO Shipping Co Ltd and Japan's Kawasaki Heavy Industries, received two Ultramax bulk cargo ship orders from Singapore-based Eastern Pacific Shipping Pte Ltd. Weighing 61,000 DWT each, it is the shipyard's first new order since the end of 2015, which is expected to be delivered in 2019.

Dong Liwan, a shipbuilding industry professor at Shanghai Maritime University, expects less fierce competition in the industry, as small shipping companies were forced out of the game both at home and in overseas markets.

"The tonnage would have seen steady growth had there been further industrial consolidation," said Dong. "This will exert further downward pressure on freight rates for the whole industry."

ICBC Financial Leasing Co Ltd, the subsidiary of Industrial and Commercial Bank of China, and China Merchants Energy Shipping Co will order six and possibly another three very large ore carriers respectively with 325,000 of DWT each from Qingdao Beihai Shipbuilding Heavy Industry Co at a total value of $675 million, TradeWinds reported.

In August, Shanghai Waigaoqiao Shipbuilding Co and Hudong-Zhonghua Shipbuilding (Group) Co, two Shanghai-based shipyards, together received a letter of intent from French group CMACGM SA for nine vessels capable of transporting 22,000 twenty-foot-equivalent-unit containers－the largest carrying capacity in the world.

However, CANSI warned the industry's economic performance has worsened during the January-September period.

The gross industrial output value of the 80 major companies in the shipping industry amounted to 284.35 billion yuan during the first nine months of this year, down 6.9 percent from the same period a year ago.

"Chinese shipyards have long been famous for their ability to quickly and cheaply churn out large numbers of simple vessels," said Zhang Hui, an industry analyst with Donghai Securities Co Ltd.

"The trouble is that an oversupply remains of exactly these sorts of ships, even while the demand has increased for more complex craft: megacontainers－large vessels capable of carrying vast amounts of cargo－ships that run on liquefied natural gas and drilling vessels."