Newbuilding market recovery set to continue in 2018
By Cichen Shen, Lloyds List January 02th 2018
Dry bulkers orders will take the lead, but tankers lack support from freight markets
CHINESE newbuilding markets are expected to see more encouraging signs at the start of the new year, with ship prices continuing to climb, led by the dry bulker sector based on last month's indications.
The monthly China Newbuilding Price Index, which tracks ship prices at Chinese yards based on inputs from 19 member broking houses, rose two points to 768 in December 2017.
Figure 1. China Newbuilding Price Index updated by Dec. 30th 2017
The dry bulker subindex increased four points to 787, while the tanker index edged up one point to 823 points. At the same time, the containership index grew three points to 789.
Strength in the underlying freight market, attractive yuan valuation as well as steel prices all played a role in the upward movement.
Additionally, higher interest rates have increased shipyards’ funding cost, which in turn contributed to the rise in ship prices, according to CNPI brokers.
Chinese shipbuilders have achieved good results in the sector over 2017. They took the lion's share by winning 59% of global new contracts in terms of compensated gross tonnage, according to Clarksons.
This indicated China’s status as the world’s largest dry bulker building nation, despite dismal market conditions seen in recent years.
The newbuilding market was bustling even in December, when shipping activities generally slow down. Clarksons recorded 428,998 cgt in new tonnage—20 ships--contracted over the final month of 2017.
Majority of them were ordered at Chinese yards by foreign buyers.
By comparison, only one ore carrier order of 48,447 cgt was won by Japan Marine United during the year-ago period.
One CNPI broker described the December market as “a warm winter just like the weather in China.”
“On one hand, Chinese state-owned companies needed to nail down their investments by year-end; on the other hand, international shipowners were concerned about a further rise in ship prices in the new year ,” it added.
So, what will 2018 look like?
“With the market recovery set to continue in the coming new year, quite a few orders are expected to fall into the hands of Chinese yards,” another CNPI broker noted.
The broker added that competition between builders in China and Japan was likely to intensify, although the Chinese seemed to have gained an upper hand in terms of delivery schedule as most slots at Japanese yards would not be available until 2020-2021.
However, having seen a substantial amount of new tonnage ordered last year for ultramaxes, kamsarmaxes and VLOCs, the broker warned that ordering momentum in these segments might decelerate this year owing to the inflated ratio between their orderbook and existing fleet.
Calculations based on Clarksons data indicate that kamsarmax (80,000 dwt-89,999 dwt) newbuildings ordered in 2017 topped 9.4m dwt, accounting for more than 61% of the total orderbook of vessels in this class. The ordering wave pushed the orderbook-to-fleet ratio to about 18% as of end-December.
In the tanker newbuilding market, South Korean builders won by a landslide, taking 60% of global orders in cgt terms for 2017, according to Clarksons.
By comparison, Chinese builders only secured 21% of orders, including 18 vessels contracted in December.
A major buyer was state-owned Cosco Shipping, whose tanker subsidiary ordered 16 tankers, including six very large crude carriers, three suezmaxes, four long range two tankers and two aframaxes, at three Chinese yards.
Looking at this year, the second CNPI broker said newbuilding tanker prices will remain at low levels, a result of the dismal rates seen in freight markets.
When it came to boxship new orders last year, Chinese yards outpaced Korean yards with 48% of the global pie versus 36%.
Chinese yards’s strength in building feeder ships as well as their success in winning the supersized-vessel orders placed by CMA CGM backed by compatriot financiers were the main reasons for the dominance.
In fact, the newbuilding markets in 2017 were comprised of ships under 3,000 teu and above 20,000 teu, leading to an 'hourglass-shaped' ordering structure, according to SITC Broker, also a CNPI member.
“That is a reflection of the current competition focus of shipping lines—competing on the main lines via big alliances while also vying for regional market share,” it added.
The broker expects ordering in 2018 to remain at the same pace as in 2017, with a slight increase in ship prices considering the rise in shipbuilding and regulatory compliance costs.
However, it also warned shipyards not to pin their hopes on a significant recovery.
This is because the upcoming delivery of a large amount of ultra large containerships is likely to reignite heated price wars among carriers, while regulatory uncertainties, such as the 2020 sulphur cap, may lead owners to halt their ordering plans.
"These assumptions, if realised, will without doubt be major bad news for shipyards that did not perform well in 2017.”