China shipyards vanishing on falling yuan and waning appetite for raw materials

An aerial view of ships being constructed at a shipyard on the Huangpu River in Shanghai, China, on Dec 3, 2006.
An aerial view of ships being constructed at a shipyard on the Huangpu River in Shanghai, China, on Dec 3, 2006. PHOTO: BLOOMBERG

SINGAPORE (BLOOMBERG) - The weakening yuan and China's waning appetite for raw materials have come around to bite the country's shipbuilders, raising the odds that more shipyards will soon be shuttered.

About 140 yards in the world's second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co analysts Sokje Lee and Minsung Lee wrote in a Jan 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013.

Total orders at Chinese shipyards tumbled 59 per cent in the first 11 months of 2015, according to data released Dec 15 by the China Association of the National Shipbuilding Industry. Builders have sought government support as excess vessel capacity drives down shipping rates and prompts customers to cancel contracts. Zhoushan Wuzhou Ship Repairing & Building Co last month became the first state-owned shipbuilder to go bankrupt in a decade.

"The chance of orders being cancelled at Chinese yards is becoming greater and greater," said Mr Park Moo Hyun, an analyst at Hana Daetoo Securities Co in Seoul. "While a weaker yuan could mean cheaper ship prices for customers, it still won't be enough to lure back any buyers. Chinese shipbuilders won't be able to revive even if you try breathing some life into them."

The Baltic Dry Index, which measures the cost of transporting raw materials, dropped 39 per cent last year and hit a historical low on Dec 16. Aggravating the situation is Chinese shipyards' heavy reliance on bulk carriers, which are used to haul commodities from iron ore to coal and grain.  Bulk ships accounted for 41.6 per cent of Chinese shipyards' US$26.6 billion (S$38.1 billion) orderbook as of Dec 1, according to Clarkson Plc, the world's largest shipbroker. That compares with a 3.5 per cent share at South Korean shipyards, which have more exposure to the tankers and gas carriers that are among the few bright spots in a beleaguered shipping industry.

Cosco Corp Singapore Ltd, which is owned by a Chinese parent company and has its shipyards on the mainland, and Yangzijiang Shipbuilding Holdings Ltd saw some bulk-carrier orders cancelled last year.