Shipbuilding Industry Economic Operation Analyzed for 2018

China Association of the National Shipbuilding Industry

2018 was the 40th anniversary of the reform and opening to the outside world. The shipbuilding industry ushered in a new opportunity of full-scale opening and high-quality development. With the joint efforts of the whole industry, the Chinese shipbuilding industry showed the good situations -- three major shipbuilding indicators maintained the leading position, the competitiveness of key shipbuilding enterprises constantly improved, the excess capacity was effectively reduced, the ship repair industry was running well, and new marine engineering equipment was developing rapidly, and marine equipment product R&D made new breakthroughs. However, affected by the weakened momentum of the world economy and shipping market recovery, and in-depth adjustment of the newbuilding market,underlying problems such as “financing difficulty”, “delivery difficulty” and“making profit difficulty” sustained and situations the shipbuilding industry was facing remained grim.

Overview of Economic Operation

1. Two up and One down of the National Three Major Shipbuilding Indicators

In 2018, completion of national shipbuilding hit 34.58 million DWT,decreasing by 14% year-on-year (YOY);newbuilding orders received hit 36.67 million DWT, up 8.7% YOY; by the end of December, ship orders at hand stood at 89.31 million DWT, up 2.4% YOY.

2. Ship Export on the Decline and Export Value on the Growth

In 2018, national completed export ships hit 31.64 million DWT, down 13.6% YOY; export ship orders received hit 32.05 million DWT, up 13.9%; at the end of December, export ship orders at hand stood at 78.68 million DWT, down 14.7% YOY. Export ships accounted for 91.5%, 87.4% and 89.1% of national shipbuilding completion, newbuilding orders received and orders held at hand respectively.

In January-October of 2018,Chinese ship export value hit $21.56 billion, up 9.6% YOY. Among Chinese export ship products, container vessels,bulk carriers and oil tankers still held the dominant position, exports totaled $11.64 billion, making up 54% of total export.Ship products were exported to 181 countries and regions, and Asia remained as the principal area of Chinese ship export. Value of Chinese ships exported to Asia amounted to $12.07 billion,making up 56% of total export; value of ships exported to Europe amounted to$3.28 billion, making up 15.2% of total export; value of ships exported to Latin America amounted to $3.12 billion,making up 14.5% of total export.

3. Economic Benefits of Shipbuilding Industry on the Decline YOY

In January-November of 2018,China had 1212 shipbuilding industry enterprises above the designated scale,they realized main business revenue of RMB403.22 billion, down 31.7% YOY.The ship building sector registered RMB285.36 billion, down 30.8% YOY;the marine equipment sector recorded RMB49.98 billion, down 40.9%YOY; the ship repair sector reported RMB17.56 billion, down 15.1%; the ocean engineering special equipment manufacturing sector garnered RMB36.61 billion, down 12.2% YOY.

Shipbuilding industry enterprises above the designated scale realized total profit of RMB9.14 billion, down 35.5% YOY. The ship building sector registered RMB5.15 billion, down 17.7%YOY; the marine equipment sector recorded RMB2.29 billion, down 49.5%YOY; the ship repair sector reported RMB520 million, down 24.6% YOY; the ocean engineering special equipment manufacturing sector garnered RMB470 million, down 39% YOY.

Main Characteristics of Economic Operation

1. International Market Share Holds the Lead, Key Shipbuilding Enterprises Have Obvious Competitive Advantages

In 2018, international shipping market rose slightly and the newbuilding market remained active. Chinese ship enterprises grasped the favorable opportunity to actively develop market.International marker share continued to maintain the leading position, yearround shipbuilding completion, new orders and orders at hand accounted for 43.2%, 43.9% and 42.8% respectively of the global market by DWT. Industrial concentration of the shipbuilding industry continued to rise, shipbuilding completion of the national Top 10 Shipbuilders made up 69.8% of the national total,increasing 11.5 percentage points over 2017. The trend was obvious that new orders concentrated on advantageous enterprises, new orders of the Top 10 accounted for 76.8% of the national total,increasing 3.4 percentage points over 2017. Competitive advantages of Chinese key ship enterprises were obvious, and five of them entered the Global Top 10 in terms of ship completion, new orders and orders at hand, respectively.

2. Product Mix Optimization Continues, Innovation Capability Improves

In 2018, Chinese key shipbuilding enterprises kept up with the market demand, the product structure continued to optimize, secured in batches orders of green environment-friendly ore carriers and feeder container ships. Meanwhile,new progress was made in the high technology, high value-added ship market such as 2500-passenger luxury ro-ro ship, 7800Cars PCTC, 84000m3 ultralarge liquefied gas carriers, 18600m3 LNG bunker vessels, 48000T semisubmersible heavy lift ships, and polar adventure cruise ships. Key enterprises stepped up technical innovation and efforts to tackle key issues, constantly improved product R&D and construction capabilities, delivered in batches 20000TEU container ships, completed the world's first 400000T intelligent VLOC,the world's first 308000T VLCC installed with windsurfing equipment, 8000Cars PCTC, polar condensate tanker, LNG dual fuel 1400TEU container ship, 350000T FPSO and other high-value ships and marine engineering projects. Construction of large domestic luxury cruise ships has entered the formal implementation stage,the independently built polar scientific research icebreaker was launched, and the “Shenhai Yongshi” manned deepsea submersible completed deep sea test.

3. Give Full Play to Market Mechanism and Effectively Reduce Excess Capacity

In 2018, the international newbuilding market competition was fierce, with the contradiction between insufficient demand and overcapacity.Under the joint action of market mechanism and government guidance,a number of enterprises with poor management ability, low product quality and poor operating efficiency were phased out by the market. In recent years, by promoting the relocation of old factories,optimizing the production capacity,integrating internal resources, adjusting the product and industrial structure, and reducing the shipbuilding capacity by the major central enterprise groups and local key private enterprises, the capacity of shipbuilding has been reduced by about 20 million DWT. Excess capacity in the shipbuilding industry has been effectively reduced. Statistics show that China shipbuilding capacity utilization monitoring index (CCI) in 2018 stood at 607 points.

4. Ship Repair Industry Runs Well, Environment-Friendly Retrofitting Demand Increases

In 2018, China's ship repair and refit industry continued to maintain a good state of operation, and the technical level of repair and modification continued to improve. The key ship repair enterprises made continuous efforts in the field of high-end modification and repair, completed the world's first super-large container ship lengthening and refitting project, the world's largest orange juice carrier conversion project,and the first domestic thin-film LNG cargo cabin repair project, and continued to maintain the leading position in the field of cruise ship repair, FPSO modification and marine engineering equipment repair. With China's formal accession to the International Convention on Ballast Water Management of Ships and the approaching date of entry into force of the International Convention on the Prevention of Pollution from Ships,ballast water treatment device and tail gas desulfurization device retrofitting business was active. In 2018, major shiprepairing enterprises in China undertook 896 additional desulfurization towers, an increase of nearly 90% over 2017, and more than 15% for ballast water treatment devices compared with 2017.

5. Breakthrough Made in New Marine Engineering Equipment, Some Inventory Equipment Disposed of

In 2018, the international crude oil price as a whole was in a relatively high range, Brent oil price once exceeded$80/bbl, and the upstream operational market of marine engineering equipment showed a mild recovery. China undertook 44 marine engineering equipment (ships/platforms) of various types, totaling $3.8 billion, an increase of 84% year on year.Key marine engineering equipment enterprises closely watched the market changes, undertook five high-value FPSO, meanwhile, made breakthroughs in LNG related marine engineering equipment such as LNG-powered standby supply ship, LNG floating regasification barge as well as new marine engineering equipment such as offshore wind power installation platform, jack-up offshore pasture platform, offshore wind power multifunctional repair ship, offshore wind power installation ship and intelligent fishing ground. In addition, China's key marine engineering equipment enterprises handled orders involving 10 marine engineering platforms and 83 marine engineering ships by resale and lease.

6. Adhere to Innovation-Driven Strategy, Achieve Fresh Breakthrough in Marine Equipment Product R&D

In 2018, China's shipbuilding enterprises adhered to the innovationdriven strategy, and strove to improve the product manufacturing capacity and R&D level. Breakthrough was made in key and core technology R&D, green environment-friendly intelligent lowspeed diesel engine, the first low-speed diesel engine equipped with exhaust gas recirculation (EGR) device, and the first domestic 25MW dual-fuel gas turbine generator were successfully handed over for acceptance. 7. Lean Shipbuilding in Full Stream, Cost Reduction and Efficiency Increase Boosted

In 2018, faced with the fierce market competition and increasing comprehensive cost, Chinese key shipbuilding enterprises took the initiative to strengthen the production management, strive to reduce the cost and increase the efficiency, and enhance the competitive ability of the enterprises. CSSC hammered out the“Project Cost” implementation plan,defined the hard task of reducing the cost, and took hard measures for cost reduction. Focusing on the top-level design of “Lean Shipbuilding”, CSSC determined the key projects of “Lean Shipbuilding”, promoted the alignment of shipbuilding indexes, and continuously improved the quality and efficiency of shipbuilding.