Subdued Commodity Prices and Declining Freight Rates to Put a Constraint on China Shipbuilding Industry: Ken Research
Posted on 07 August 2016 by KenResearch Manufacturing And Construction,
Prices for all the major commodities, for instance, coal; iron ore and crude oil are expected to remain depressed for the next few years. This undoubtedly translates into depressed shipping rates, especially for dry bulk carriers at the time when two-third of the Chinese shipbuilding industry is involved in the production of bulk carriers.
With most of the developing world suffering from an economic slowdown, a prolonged weakness in the commodity prices is expected over the next decade. Fluctuations in the commodity prices have a huge effect on the Shipbuilding Industry. The expectation of low commodity prices means that there will be a readjusting of the current and future fleet of the shipping companies. This directly affects the orders for the new ships that the shipping companies place with the shipbuilders. In 2015, China’s Shipbuilding Industry accounted for 35% of the global shipbuilding industry’s revenue. China’s Shipbuilding Industry value has been declining since 2010. The new orders in China Shipbuilding Industry witnessed a negative CAGR of 7% from 2010-2015. This has been in line with the declining orders in the global shipbuilding industry. This is mainly attributable to the fact there is no longer any kind of elevation is expected in the prices of the commodities. After years of heavy investment in the commodity extraction, the majority of commodity producers are concentrating their attention on keeping their market share, especially in case of coal, iron ore and crude oil. This has created oversupply situation and has been the reason for the declining commodity prices.
It’s a rampant trend that when freight rates are not sufficient to cover the running costs, the vessels are laid up. China has been the most popular country for the laid-up vessels. The increasing trend is driven by the lower than estimated world economy’s growth and by persistent tonnage oversupply as evident from the dry bulk sector. Lay ups have been more for the larger vessels as the daily running expenses are considerably above the earnings with no signs of improvement in the world economy. This is one of the major causes for the decline of the industry.
Even the future does not seem to go well for the Chinese Shipbuilding Industry. A series of consolidation is on the cards for most of the Chinese shipyards. Revenues for the Chinese Shipbuilding Industry are expected to decline in the future. Even the steel industry, one of the major industries for the shipbuilding sectors, shows little signs of recovery and is exacerbating the problems for the shipbuilding sector.
The report titled “China Shipbuilding Industry Outlook to 2020 - Concentration on Gas Carriers and Cruise Ships to Stimulate China Shipbuilding Industry” provides detailed overview on the new shipbuilding and ship-repair industry of China. This report helps reader to identify the ongoing trends in the industry and anticipated growth in future depending upon changing industry dynamics in coming years. The report is useful for shipbuilding companies, shipping companies and the companies providing maritime services to the clients and other stakeholders to align their market centric strategies according to ongoing and expected trends in the future.
For more information on the report, refer to the below link:
Ankur Gupta, Head Marketing & Communications