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Rongsheng May Deliver Two Large Ore Ships in 2011, Six Fewer Than Planned

China Rongsheng Heavy Industries Group Holdings Ltd. may deliver as few as two very large iron ore carriers this year, six fewer than planned, because of delays in building the vessels that cost about $140 million each.
The shipbuilder will hand over two or three of the 400,000 deadweight ton vessels to Vale SA (VALE) in September or October, Chief Executive Officer Chen Qiang said today in an interview in Hong Kong. It will boost VLOC deliveries next year and doesn’t expect to have to pay compensation for the delays, he said.
Rongsheng also intends to win its first order for a 10,000- container vessel this year, as it works to pare its reliance on commodity ships, Chen said. Dry-bulk vessel orders have tumbled worldwide as a glut of new ships has caused rates to fall 67 percent in a year, according to the benchmark Baltic Dry Index.
“The weak bulk-shipping market was possibly good for Rongsheng because customers may not have been in a rush to put ships into service,” said Cho In Karp, head of research at Heungkuk Securities Co. in Seoul. “Still, the delivery delays show that Chinese yards still need to do a lot of work to win overseas clients’ confidence.”
Vale, Oman Shipping
Rongsheng has orders for 16 400,000 deadweight ton VLOCs from Vale, the world’s largest iron-ore producer, and Oman Shipping Co. The company intended to deliver eight of the ships this year, according to its IPO prospectus.
“We have reached a consensus with the shipowners,” Chen said. “They hope we won’t sacrifice quality for time.”
The shipbuilder fell 1.2 percent to HK$5.04 at the close of trading, reversing earlier gains of as much as 4.3 percent. The company has plunged 37 percent from its November initial public offering price, compared with a 3.8 percent drop for the benchmark Hang Seng Index.
The company plans to get 40 percent of sales from shipbuilding by 2015, 20 percent from marine engineering, as much as 25 percent from machine engineering and the rest from making engines, Chen said. Last year, about 94 percent of the company’s 12.7 billion yuan of sales came from shipbuilding.
To help boost revenue, Rongsheng may buy engine-makers and small shipbuilders, Chen said. The company last month agreed to buy diesel-engine maker Anhui Quanchai Group Corp. for 2.1 billion yuan.
Orders Target
Rongsheng expects to win $3 billion of ship orders this year, with about 50 percent coming from China, Chen said. Its profit margin will likely be similar to last year’s figure or about 22 percent, even as the yuan strengthens and steel prices increase, Chen said.
The shipbuilder plans to focus its dry-bulk operations on building Panamax vessels, rather than smaller capesizes, as these ships can be used for a wider range of products including food, he said. Government ownership rules are also boosting demand for Panamaxes to be used on domestic routes, Chen said.
“I see good prospects for Panamaxes -- but not for other types -- because demand for domestic shipping in coastal China is strong,” he said. “Shipowners also want to buy Panamaxes on the outlook for rising demand for shipping food.”
The company has won 14 panamax orders so far this year, including 10 from China, he said. Dry-bulk vessels accounted for 89 percent of Rongsheng’s orderbook by value at the end of last year, with the rest split between container vessels and oil tankers.
The company is in talks with a “few shipowners” on its first order for ships able to carry 10,000 20-foot containers as well as for contracts to build 6,500-container vessels, Chen said. He didn’t elaborate on the size of any potential order.
The shipbuilder is bolstering its technology to make more advanced vessels including liquefied natural gas tankers and offshore ships as demand for dry-bulk vessels wanes. The company delivered a deepwater pipe-laying ship to China National Offshore Oil Corp. yesterday.

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