For the first time South Korea have been overtaken by China as the world’s largest shipbuilder.
Chinese yards are shown to be ahead of their South Korean rivals on all key measures such as ship deliveries, deadweight and gross tonnage, according to figures for the first half of the year.
Clarksons report that Chana delivered 22.7m dwt in the first six months of 2010, with South Korea behind with just 18.3m dwt.
These figures put China around five years ahead of the government’s stated ambition to become the largest shipbuilder by the year 2015. However, brokers are not convinced that China can maintain the momentum and stay on top for the full year, believing that South Korea is likely to overtake China China by 2011.
However, it is believed that beynod that China will take the crown on a more permanent basis.
Despite South Korea’s forecast market share increase shipbuilders’ backlogs are expected to continue shrinking until late 2011 or 2012.
A new HSBC analyst reports that the recent comparative decline in new orders at South Korean yards and their inability to make new investments will see cash flows eroded and problems with increased debt across the sector.
While the Chinese shipbuilding industry has the support of the government policy which encourages state-owned shipowners to place orders as well as access to cheaper financing from Chinese banks, South Korean yards are simultaneously losing their bargaining power as BRIC countries enforce national sourcing policies that require parts and yard facilities be sourced domestically.
Chinese yards enjoyed a significant increase in newbuilding orders through 2009 just when the industry was suffering the most, thanks to the lure of cheap financing which analysts suggest pulled in a significant number of owners who would have otherwise headed to South Korea.
According to HSBC Chinese commercial banks are increasingly financing domestically built ships, for foreign as well as Chinese buyers, and shipping funds in Shanghai and Tianjin intend to support the expansion of the Chinese fleet, especially in the event of contracts that have fallen into default.
“Korea’s shipbuilders will have to lower vessel prices and sacrifice profitability to secure new orders,” analyst Paul Choi wrote in the research paper. “The Korean shipbuilding industry’s positioning is structurally weak and it lacks the government support and scale of big shipping companies in China.”
According to HSBC new orders at South Korean yards should improve to 16.8m CGT for 2010, up 43% year on year and the current low newbuilding prices should encourage further investment. However the report concedes that this is not a sustainable trend and a weak macro backdrop, potentially weaker commodity pricing, ship delivery delays causing continued oversupply and the structurally weaker positioning of Korean yards will remain the key obstacles to a full-blown recovery.