China Shipbuilding Industry Economic Operation Analyzed for 2022

China Association of the National Shipbuilding Industry

Basic Situation of Economic Operation

Shipbuilding indicators a mixed bag

In 2022, completion of national shipbuilding hit 37.86 million DWT,decreasing by 4.6% year-on-year(YOY); newbuilding orders received hit 45.52 million DWT, down 32.1% YOY;at the end of December, ship orders at hand stood at 105.57 million DWT, up 10.2% YOY.

In 2022, national completed export ships hit 30.67 million DWT,down 14.6% YOY; export ship orders received hit 40.56 million DWT, down 31.7% YOY; at the end of December,export ship orders at hand stood at 95.22 million DWT, up 12.6%YOY. Export ships accounted for 81.0%, 89.1% and 90.2% of national shipbuilding completion, newbuilding orders received and orders held at hand respectively.

Ship export value keeps growth

In January-November of 2022,the export amount of China's ships was USD23.85 billion, up 7.9% YOY.Among the export ship products, bulk carriers, oil tankers and container ships still dominated, with a total export amount of USD12.38 billion,accounting for 51.9% of the total export amount. China's ship products were exported to 191 countries and regions,and the amount of ships exported to Asia, Europe and Latin America was USD12.28 billion, USD4.05 billion and USD2.06 billion respectively.

Main business income and profit grow

In January-November of 2022,China had 1093 shipbuilding industry enterprises above the designated scale,and they realized main business revenue of RMB457.29 billion, up 8.0% YOY,and total profits of RMB13.65 billion,up 70.0% YOY.

Major Highlights of Economic Operation

International market share keeps leading, key enterprises enhance competitiveness

In 2022, China's international shipbuilding market share ranked first in the world for the 13th consecutive year, and its position as a major shipbuilding country was further consolidated. China's shipbuilding completion, new orders and hand-held orders accounted for 47.3%, 55.2%and 49.0% of the world's total by dead weight ton, respectively, up 0.1,1.4 and 1.4 percentage points compared with 2021, and 43.5%, 49.8% and 42.8%by compensated gross tonnage, also maintaining the global lead. China's key shipbuilding enterprises maintained strong international competitiveness,with 6 enterprises entering the Top 10 in terms of shipbuilding completion,new orders and handheld orders.

With new breakthroughs of high-end equipment, greenpowered ships grow rapidly

In 2022, Chinese shipbuilding enterprises continued to step up their research and development efforts, and made new breakthroughs in hightech ships and marine engineering equipment. High-end ships such as 24,000TEU container ships, and 174,000 m3 VLGCs were delivered in batches, the first large homemade cruise ship achieved the milestone of main power generation motor vehicle,and the construction of the second large cruise ship started smoothly.Marine engineering equipment such as 100,000-ton smart fishery large-scale aquaculture ship, fourth-generation jack-up wind power installation vessel,and tubular FPSO were delivered. The 300,000-ton LNG dual-fueled VLCC,209,000 DWT Newcastlemax LNG dual-fueled bulk carrier, and 49,900-ton methanol dual-fueled chemicals/ product oil tankers among other green powered ships were completed and delivered. Green powered ships accounted for 49.1% of new orders,hitting a record high.

Application of homemade marine equipment products speeds up, safety of industrial chain improves

In 2022, the onboard installation rate of homemade marine equipment including marine main engine, marine boiler, marine crane and marine fuel gas supply system (FGSS) will continue to improve, the 1000th marine crankshaft of Dalian Sinovel rolled off line and was delivered,and the world's first dual-fuel main engine with intelligent control system of waste gas recycle was completed and delivered. Marine high-end steel research ability continuously improved,crack arresters of large container ship completely realized domestic substitution, localization rate of duplex stainless steel of chemical tankers rose from less than 50% to more than 90%,homemade high manganese steel tank project started smoothly, stainless steel dedicated to homemade membranetype LNG tank passed the patent company’s certification, full position automatic welding equipment for homemade LNGC corrugated plate was developed successfully. The security level of industrial and supply chains was significantly improved.

Demand for offshore oil and gas equipment expands,destocking pays off

In 2022, international oil prices fluctuated at high levels, Brent crude briefly climbed as high as USD139 a barrel, a new high since the financial crisis, bringing along the increasing demand of the global offshore oil and gas equipment market. Chinese marine engineering equipment enterprises seized the opportunity to achieve positive results in destocking. CSSC delivered two jack-up drilling platforms and six of ocean engineering auxiliary vessels; China Merchants Industrial Group delivered two drilling platforms,three multi-functional service platforms and one other unit; COSCO Shipping Heavy Industry Co., Ltd. delivered two ocean engineering auxiliary vessels; Yantai CIMC Raffles Marine Engineering Company obtained a lease for onr semi-submersible drilling platform and one jack-up drilling platform.

Seize favorable market opportunity, the industry efficiency improves

In 2022, the market environment elements of the shipbuilding industry generally showed favorable changes.The Clarkson new ship building price index was 162 points, up 4.5% for the whole year. Among them, the prices of large container ships, 7,000CEU PCTC and 174,000 m3 VLGC increased by more than 10% on average. The prices of 6mm and 20mm marine steel plate marked down by more than 1000 yuan/ton from the beginning of the year;the central parity rate of RMB against US dollar depreciated by 9.23%.Meanwhile, shipbuilding enterprises reduced cost and increased efficiency by strengthening the planning management of shipbuilding milestones, implementing intelligent transformation of production lines, and intensifying cost management.Over the January-November period,the corporate profitability improved significantly and the profit margin of main business revenue rebounded to 3.0%.

Restructuring pays off, quality of new ship orders on the continualelevation

In 2022, China's shipbuilding companies consolidated the leading market position of their dominant ship models, and tamped the new ship order base. Among the global 18 main ship types, new orders of 12 ship types received by China ranked first in the world, among them, new orders for bulk carriers, container ships, PCTCs and crude oil tankers accounted for 74.3%,56.8%, 88.7% and 66.1%, respectively,of the global total. In particular, a major breakthrough was made in the field of VLGCs, and the international market share of new orders for VLGCs exceeded 30% for the first time. During the year, the order structure of new ships was optimized and improved, and the CGT/DWT ratio (compensated gross tonnage / dead weight ton) reached 0.468, which was the best level in history.

Challenges and Main Problems

Prominent contradiction between well-stacked production tasks and labor shortage

In 2022, China’s ship holding orders outnumbered 100 million DWT again after six years. The average production guarantee coefficient of shipyards (holding orders / mean value of completion in the last three years) is about 2.7 years, and the delivery period of some enterprises was scheduled to 2026. At present, the production task of shipbuilding enterprises is full,especially the rapid growth of hightech ship orders increased demand for skilled labor workers. In recent years,the loss of outsoursing laborers has been large due to the impact of COVID-19,and on-duty rate of employees has decreased significantly due to the increasing number of people infected by the epidemic, aggravating the labor shortage. The contradiction between the full production task of shipbuilding enterprises and the insufficient labor supply is further expanded, making the stability issue of the labor force more prominent.

The stability of the marine equipment supply chain is still facing challenges

In the past two years, the demand for marine equipment has increased significantly with the substantial increase of new ship orders, and the production capacity of marine equipment manufacturers can hardly increase rapidly in a short time,resulting in a widespread product price hike and supply delay. In addition, the production cycle of marine equipment,logistics costs and transport cycle have generally increased due to the impact of COVID-19. The supply of some imported marine equipment is even tighter. The average arrival cycle of ship communications, navigation, automatic control system, electronic and electrical equipment is 1-3 months longer than the normal state, and more than 3-6 months longer for the arrival cycle of ship machine chips, crankshafts, piston rings and control systems.

Ship market adjustment risk gradually increases

In 2022, the global economy entered a period of high inflation and low growth, with the economic growth rate slowing by nearly half of the previous year, and consumer demand and the development of seaborne trade both impacted. The most prominent is that in 2022, the container transport market showed a significant adjustment.The freight price of container ships fell for eight consecutive months to USD27,600 / day by the end of the year, down 68.4% from the peak of the year. Since the second half of the year,the new ship building price index has stagflated, maintaining at the level of 162 points for six consecutive months,and the price of some ship types has fallen slightly. The risk of short-term adjustment to the international shipping and shipbuilding markets is escalating.

Predictions

In 2023, according to the IMF estimations, the world economy will face greater downward pressure, the economic growth rate will continue to grow low, and the contraction of demand will certainly have a negative impact on the international shipping and shipbuilding markets. After comprehensive analysis, it is expected that the global shipbuilding completion in 2023 will remain at a historical high level of 100 million DWT, the new orders less than 100 million DWT,and the handheld orders above 200 million DWT; China’s shipbuilding completion will exceed 42 million DWT,the new orders about 40-50 million DWT, and the handheld orders remain around 100 million DWT.

Proposals

Steady first, ensure safety measure implementation for ship delivery

In the following 3-4 years,Chinese shipbuilding enterprises will usher in the peak period of ship delivery, and the proportion of hightech ships will increase significantly.The year 2023-2024 will be the centralized delivery period for large container ships. As schedualed, China will deliver 44 large container ships of 15,000 TEU and above, accounting for more than 20% of the completed shipbuilding volume in that year. The year 2025-2026 will be the centralized delivery period of VLGCs, with many enterprises as first VLGC builders. It is suggested that shipbuilding enterprises should comprehensively strengthen the management of production plans and supporting materials, adhere to the philosophy of quality first and safety first, and ensure the delivery of ship holding orders on schedule.They should fully implement the primary responsibility for enterprises in production safety, strengthen the management of production safety throughout the whole process, ensure the orderly progress of production, and ensure the safety of employees.

Improve quality and efficiency,grasp the rhythm to improve the quality of orders

In the past two years, the global new shipbuilding market has remained active, and the market demand for different ships has shown rotating development. The prices of large container ships, PCTCs and VLGCs have increased significantly, and the spread of the same type has reached tens of millions of dollars in one year.It is suggested that ship enterprises should strengthen the dynamic tracking of the development of the international shipping and shipbuilding markets,avoid blindly following suit, optimize the business strategy, and grasp the pace of receiving orders. In the light of their own ship holding orders and dock arrangement, on the premise of ensuring the continuity of production,they should optimize the business strategy, grasp the pace of receiving orders, and further improve the quality of new orders.

Guard against risks,strengthen research and judgment and take countermeasures

At present, the external environment facing the shipbuilding industry is becoming more complex and uncertain. Since the fourth quarter of 2022, the exchange rate of RMB against US dollar has appreciated continuously, breaking the 6.8 mark;the price of imported iron ore reached USD116 / ton, up 43.2% compared with the low in 2022; the fluctuation of new ship price increases, stagflation comes up for the new ship building price index and the prices of some ship types have decreased. It is suggested that shipbuilding enterprises should strengthen market research and judgment, adhere to the risk-neutral concept, strengthen the upstream and downstream cooperation of the industrial chain, and control risks of raw material costs and exchange rate changes by signing long-term procurement agreements with steel enterprises and long-term exchange settlement agreements with financial institutions. Furthermore, the IMO EEXI and CII rating new rules taking effect, it will adopt the revised IMO ship greenhouse gas reduction strategy in July 2023. We thus suggest that relevant shipbuilding companies and research institutions should pay close attention to them and take early countermeasures.

Explore and innovate to address insufficient human resources

At present, the contradiction between the rapid growth of ship production and the shortage of labor supply is increasingly prominent,which has become an important factor restricting the high-quality development of the industry. It is suggested that relevant government departments attach great importance to it, organize in-depth research,and increase policy support for the employee recruitment and professional post training of shipbuilding enterprises. It is suggested that the key areas of ships should study and innovate the training mechanism of professional and technical personnel of ships and marine engineering equipment in combination with the vocational education reform.It is suggested that the backbone ship enterprises reform the existing employment mode, explore measures such as appropriately increasing the number of skilled workers, raising the salaries of workers and improving the working environment, so as to maintain the stability of the staff and improve the technical level. At the same time,it is suggested that the ship enterprises should steadily promote the application of intelligent manufacturing technology,improve the production efficiency, and alleviate the problem of labor shortage.