China shipbuilders in stormy waters as BDI hits 25-year low
Shanghai. February 6. INTERFAX-CHINA - The Baltic Dry Index (BDI) touched a 25-year low of 647 points on Feb. 3, while weak shipping demand and a seasonal boost in capacity last month added to the challenges facing China's shipbuilders.
The BDI has plunged 58 percent so far this year and currently stands beneath the 663-point low seen during the global economic downturn of 2008. Freight rates on the key iron ore route from Brazil's Turbarao port to Qingdao have tracked the benchmark index, falling by more than 40 percent in 2012, according to Mysteel.
Inactivity during the Chinese New Year holiday (Jan. 22 - Jan.29), as well as the poor state of the global economy, contributed to the declines, Song Yan, a representative of state-owned China National Chartering Co. Ltd. (Sinochart), told Interfax.
"January is peak season for new ship deliveries and volumes are sometimes 50 percent higher than other times of the year. Chinese buyers took a particularly long New Year holiday this year, however, denting demand for freight capacity," said Song.
Only 70 percent of ship orders due were delivered last year and many were delayed until 2012, Song noted.
Global shipping capacity is expected to expand 12 percent this year while commodity demand will rise only 6 percent, exacerbating overcapacity problems, said Mysteel analyst Yu Chen.
Freight prices have also taken a hit from difficult weather conditions in major mining regions, said Yu: "Typhoon Heidi in Australia forced the closure of numerous ports last month, while heavy rains in Brazil impacted on iron ore output."
Amid the difficulties, China's ship building industry saw new orders fall 51.9 percent in 2011 to 36.22 million dead weight ton (DWT), and nearly one-third of ship builders received no orders at all, according to the China Association of National Shipbuilding Industry (CANSI).
Some companies have suspended production in the first quarter of 2012 as a result, and this is likely to impact on demand for medium-thick steel plate, an important shipbuilding component. The price of the product was low throughout last year, weighed on by weak demand and overcapacity problems.
Changes to the profile of the sector are not weighing in China's favor. Demand is falling in segments where China is strong, such as bulk cargo and oil tanker capacity, while the market is trending toward super container carriers and LNG tankers. Meanwhile, rising labor costs and the appreciation of the renminbi are further darkening the outlook for domestic shipbuilders this year, according to CANSI.
-KHM