COSCO: Lacklustre Market Outlook for Newbuilds

Highly volatile global market conditions are expected to keep shipbuilding prices at the current lows, according to Singapore-based shipbuilding and dry bulk shipping group COSCO Corporation.

The Clarkson Newbuilding Price Index peaked at 140 points in mid-2014 before declining to 138 in December 2014. Correspondingly, the China Newbuilding Price Index had recovered steadily in 2013 and reached a high of 960 points in mid-2014 before ending at 939 in December 2014.

COSCO’s Vice Chairman and President Wu Zi Heng believes that the prices may not recover any time soon.

“We foresee near-term price weakness in the face of the global tonnage surplus that has grown with a younger fleet. This is expected to curtail appetite for investment in newbuilds,” Wu said, voicing great concern about credit availability from cautious lenders to the maritime industry.

“The outlook for market for newbuilds is expected to be lacklustre, but we expect to see a resilient market for dual-fuel eco-friendly ships, LNG carriers and special purpose vessels with higher specifications,” Wu added.

As explained, the ship repair and conversion market may still face pressures amid the backdrop of tonnage overcapacity, younger global fleet and lower repair prices.

“However, opportunities may present themselves as many ship owners with older fleets are likely to allocate higher budgets for repair, with the increased cash flow resulting from lower oil prices and operating costs. There should also be additional opportunities after the enactment of the more stringent International Maritime Organisation Convention amendments,” he commented.

In 2014, COSCO’s shipyards in Dalian, Guangdong and Zhoushan were included in the white list published by the Ministry of Industry and Information Technology of the People’s Republic of China.

Wu said that this may help the company’s  yards to receive favourable policy support and gain easier access to loans especially from state-owned banks.

COSCO reported a USD 748 million turnover for the quarter ending March 31, 2015, a 5% dip compared to the same period a year before, triggered by a decrease in shipyard and dry bulk shipping revenues.

The company’s turnover from shipyard operations dropped 5% to SGD 981 million due to lower revenue contributions from marine engineering and ship repair business.