Chinese Shipbuilders May Slip Deeper Beneath the Waves

(Beijing) — As new-vessel orders weaken and order backlogs decline, China — the world’s largest shipbuilding nation — is facing some tough years ahead, an industry association warned.

During the first six months of this year, Chinese shipbuilders received new orders totaling 11.51 million deadweight tons, down 29% from the same period in 2016, according to figures that the China Association of the National Shipbuilding Industry released Friday. Deadweight tonnage is how much a ship can safely carry, not the weight of the ship itself.

The order backlog held by Chinese shipyards also dropped 30.5% from a year earlier to 82.84 million deadweight tons, the association said.

But China also completed construction of vessels with a combined carrying capacity of 26.54 million deadweight tons during the first half of this year, up 57.4% from a year earlier, it added.

“By 2019, idle capacity will likely go up significantly, with some shipbuilders operating massively below their capacity and facing serious challenges in continuing production,” the association said.

Overcapacity and slowing global economic growth have been hitting the global shipping industry hard. According to a recent report by Clarksons Research, the number of actively producing shipyards worldwide has dropped to 372 from 931 at the beginning of 2009.

Apart from lower new-order prices and payment delays, a glut in global trade over the past few years also dampened demand for new container ships, oil tankers and bulk freights used for transporting cargo.

Chinese shipyards are facing additional pressure from the government’s deleveraging campaign, which makes it harder for the yards to refinance their respective debts.

Chinese officials have long called upon the shipbuilding industry to further restructure and consolidate via merger to get rid of excess capacity. Last year, China’s largest shipping company, China COSCO Shipping Corp. Ltd., established COSCO Shipbuilding Heavy Industry Co. Ltd. by integrating 13 large shipbuilding factories and over 20 supporting service companies in an attempt to survive by consolidation.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)