Shipbuilding is an industry closely related to global economy and trading and would be easily affected by any economic instability. Since the beginning of 2011, global economy has been confronted with various problems such as American debt ceiling adjustment, European debt crisis, etc. Insiders should pay high attention to following market risks.
Insufficient capacity demand
Since 2011, drawn by external demand shortage and internal capacity surplus, shipping industry has gone sluggish with high capacity, high cost and low freights. Shipowners’ situations are even worse than that in the financial crisis.
The underlying reason for the inadequate capacity demand is the stagnant economy of developed counties and overheat and inflation in developing countries.
As the downstream market of shipping industry, shipbuilding market’s relationship with shipping market lies in the proportion between orderbook and fleet size. That is to say, once shipping market is oversupplied, the declining freight rates could lead to the fall in new orders and order backlog which would further make the proportion back to normal level.
The high prosperity of shipbuilding market in 2003 made the proportion in 2007 four-fold higher than the normal level. After the financial crisis, newbuilding market went through great drop and thus eased the supply-demand contradiction. In the first half of 2011, international newbuilding output came up to 16.77m CGT, half of the volume in 2010 and one fifth of the high record in 2007. Global orderbook stood at 428.94m DWT, driving its proportion with fleet capacity proportion to 0.30.
Changing exchange rate 
Shipbuilding is a highly outward industry and therefore greatly vulnerable to exchange rate fluctuations.
The continuing appreciation of yuan against dollars has brought more negative effects to Chinese shipbuilding industry. The appreciation would greatly reduce shipyards’ operational incomes and increase their costs.
The appreciation margin of yuan is expected to be 5-6% in 2011, which means China’s advantages in exchanges rate over Korea and Japan are gradually vanishing.
Unstable capital chains
When shipbuilding industry is in buyers’ market, shipyards would have to accept shipowners’ request of reducing advance payment for the purpose of winning orders. This would further aggravate capital shortage of shipbuilder and lead to production capital insufficiency. Taking the long period of shipbuilding and yuan appreciation into account, shipyards would face different problems such as profits decline, falling order value from vicious competition and so on.
For shipping companies, the long-time sluggish market has led to their tight capital liquidity and difficult ship financing.
Changes in ship product structure
As for the detailed ship type market, the main ship types have undergone polarized conditions in the first half of this year.
Due to capacity oversupply of bulker, most shipowners suffered from diving freight rate which led to a 32% decline in bulker orders. On the contrary, containership market performs excellent by gaining 976% increase, especially larger and mega boxships. Besides, offshore and environment-friendly ship demand is also on the rise for climbing oil price and supply demand. In a word, global newbuilding market has been dominated by high-value ships.
However, bulker orders are still prevailing in domestic shipbuilding market, in which bulker orders occupy 70% of the orderbook. The changes in ship product structure are likely to rouse great risks for Chinese shipbuilders.
Experts predict that international shipping market would not have fundamental turning in second half of this year despite of expected slight improvement. Therefore shipbuilding market is likely to continue the downturn momentum.