MNI INTERVIEW: China Shipbuilding Growth Sustainable After Jump

China’s long-term trade prospects, increased international competitiveness, and push into liquified natural gas vessels will help drive further sustainable growth in the country’s shipbuilding industry following a 95.4% y/y production increase over January and February and 31.3% y/y expansion to the total order book, an expert told MNI.

Improved competitiveness and diversified development of China’s shipbuilding industry drove the output improvement, said Xu Kai, chief information officer at the Shanghai International Shipping Institute. "Demand for liquefied natural gas (LNG), liquefied petroleum gas (LPG) and specialised transport ships have all increased," Xu said, stressing overcapacity was not an issue.

Overseas demand for Chinese bulk ships, tankers and containers had also spurred growth, he explained. “Stronger environmental compliance regarding ship emissions have forced owners to upgrade, with the EU’s demand for greener ships especially strong,” Xu continued.

New ship orders have also increased 64.4% y/y to 15.2 million deadweight tons during January and February, according to China Shipbuilding Industry Association data.

Xu added China’s dockyards had captured more global market share as they pushed up the value chain, particularly LNG-powered vessels and carriers, as well as developing patented technologies in energy conservation and intelligent shipping.

Investors have also flocked to the industry given the relative stability in China’s interest and exchange rates, Xu said, adding South Korean rate hikes had made its dockyards more expensive relative to China, he said. “South Korean and Japanese currency depreciation has raised the cost of vessel building materials considerably thus lowering their competitiveness, while China has been shielded from any impact due to its self-sufficiency in raw materials, such as steel,” Xu noted.

OVERCAPACITY CONCERNS

Xu pushed back against overcapacity concerns, arguing China’s output must keep pace with the strong outlook for international trade, especially given diversified growth with Belt and Road Initiative and BRICS countries, which made trade performance less volatile. He pointed to China's strong trade performance for the first 4 months of the year, which reached CNY13.8trillion, with labour-intensive products increasing 9.1% y/y.

BRICS imports and exports reached CNY1.5 trillion in Q1, up 11.3% y/y, while BRI trade hit CNY4.8 trillion, up 5.5%, and already more than 50% of the entire of 2019's CNY9.3 trillion total.

In 2023 global shipyard production went up 10% y/y to 35 million compensated gross tonnage, with China securing 50% of market share for the first time, according to Clarksons, a maritime research firm. Qatar Energy, a petroleum firm, recently ordered 18 ultra large LNG cargo vessels from China State Shipbuilding Corporation (CSSC) for delivery between 2028 and 2031.

CONTAINER COSTS

A recent moderate rebound in freight container costs following a 22% fall in the Shanghai Containerised Freight Index (SCFI) looked sustainable given current trends, with a mild increase expected throughout 2024, Xu said. Dry bulk costs, however, showed no sign of a rebound and would remain flat.

The SCFI recently rose 10% to 1,940 after dropping from a 15-month high of 2,239 in January driven by red sea tensions, while the Baltic Exchange Dry Bulk Index has fallen 41.32% since the end of last year to 1,876.