HONG KONG: INTERTANKO MARKET SEMINAR FOCUSES ON ASIA

Three leading analysts: Tim Huxley, Director, Clarkson Asia, Hong Kong, Giles Lane, Director, Clarkson Asia, Singapore, Erik Ranheim, Manager, Research and Projects, INTERTANKO, presented their views at the INTERTANKO Hong Kong seminar on 4 November.

Tim Huxley outlined the pros and cons of shipbuilding in China. An excerpt from Mr Huxley’s presentation follows:

 

“In China there are now thirty-three shipyards building ocean-going ships. Over the years, the Chinese shipbuilding industry has grown to a position where twelve per cent of the world orderbook is currently being built in China, and the nation now occupies a solid third place in the league table of world shipbuilders.

 

Admittedly, China still lags far behind the market share of the shipbuilding giants of Korea and Japan, but this is a gap which is certain to close in the coming years. The client base of the Chinese shipyards has expanded to include national flag carriers such as NITC; major names such as AP Moller and Torm and a considerable number of Greek owners have joined the ranks of customers of Chinese yards.

 

Certainly, steel costs and labour in China are much cheaper than in Korea and Japan, and in most cases, the price quoted for a standard ship will be cheaper, but this does not represent the whole picture and we are asked many times, why, with such low overheads, are Chinese prices not much lower than elsewhere. A prime reason for the difference in price not being in line with the difference in steel and labour costs is that there is a high imported content in Chinese built ships, in terms of equipment.

 

Whilst these lower prices are a definite 'pro' to building in China, they have to be considered with an area where costs are higher. Any owner undertaking a newbuilding in China must allocate considerable resources to supervision right through the building period, from initial contract specification and maker's list, through plan approval and right through the construction process.

 

This investment in supervision, however, leads on to one of the major reasons why Owners should consider building ships in China. In an age where commercial pressures mean that Japanese and Korean yards are very much geared to series production and where changes to basic specifications come at a considerable premium - if they can be accommodated at all - in China you will find shipyards that are much more flexible in their approach to incorporating design changes both in the initial contract specification stage and during construction.

 

Two other key factors which influence the cost of newbuildings in China are the fact that the Chinese currency is linked to the US Dollar and the issue of refund guarantees from the Owner.

 

Another cost to be wary of is that Chinese shipbuilders require a bank guarantee to be established by the Owner at the time of signing the contract for the interim stage payments, excluding the final delivery payment. This is an added cost for an Owner and requires keeping resources employed as collateral for that guarantee which could be employed elsewhere.

 

The problem lies in the considerable diversity of competence between on the one hand well established yards, particularly those in the CSSC and CSIC groupings, and some of the local provincial yards on the other.

 

The biggest reason not to build a ship in China is exactly the same as the reason not to build a ship in Japan, Korea or anywhere else. We don't need it.”

 

Giles Lane talked about the prospects for the tanker market with focus on Asia. He presented two scenarios for the tanker market depending on the growth in oil demand. In the first he forecast a just over 3% growth in oil demand and in the second a 1.55% growth in demand. In the first another 81 VLCCs would have to be ordered before 2007 and in the second 29 VLCCs. The figures for Suezmaxes were 15 newbuildings in the event of higher demand and a reduction of 4 in the event of lower demand. The figures for Aframaxes were 34 and 20 and for Panamaxes 5 and –4. The demand for new orders for smaller sizes until 2007, taking into account replacement demand and increased trade, was estimated at 196 tankers in the first scenario and 304 in the second.

 

Mr Lane said that most of the world increase in refinery capacity would come in Asia for example, in India. While the greatest portion of planned capacity had already been completed, some 39 million tonnes remained to come on stream in the next 5 years. If this capacity materialised, refining capacity would continue to outpace expected domestic oil demand in the coming years.

 

Erik Ranheim gave a presentation on the state of the industry. He said that the statistics now demonstrated that the safety level of the industry had become so high that to improve safety further a systematic approach was needed. Such an approach had to be based on good data on the type of incidents to which tankers were exposed. Today nobody in the shipping industry had the responsibility to create good incident statistics for shipping. The Class, operators, charterers, insurers and the ports were all sitting on information, but nobody had the responsibility to collate all the information and analyse it properly.

 

Mr Ranheim also gave an outline of the market and said that unlike most other tanker market downturns, the current low market was mainly caused by falling demand. The demand had been hit by both low economic activity and an increasing amount of oil export from sources closer to the consumer areas, in particular Russia. Since 1998 Europe had reduced imports from the Middle East by some two million barrels, whereas imports from Russia had increased by some 1.5 million barrels, the difference having been taken from W Africa and other sources.

 

Mr Ranheim did, however, indicate that the supply and demand situation in the tanker market was rather tight and the strong upturn end October was an indication that there was not a great surplus of tonnage. This would mean that the market conditions could suddenly improve for the better. However, many tankers needed to be sold for recycling just to balance all the newbuildings that would come on the market next year. The current orderbook covered the replacement demand caused by the MARPOL Annex I 13G phase-out requirements until 2006/7. For the market to improve both a high level of sales of tankers for recycling and an increase in demand would be necessary.

 

Mr Ranheim also covered the falling newbuilding prices and showed that current prices converted into South Korean Won were still above the level before the Asian crisis, despite prices in USD having demonstrated a declining trend throughout the 1990s. South Korea was clearly the biggest builder of tankers and had today a currency advantage over Japanese shipbuilders.

 

Mr Ranheim concluded by saying that the prospects in the tanker market would very much depend on increasing demand in Asia, in particular China. Today Japanese imports were declining and Korean oil imports were rather steady.

 

Mr Ranheim’s presentation can be viewed here.