Shipyards all over the world are struggling as contracting volumes and prices have dropped in recent years, and Chinese yards are no exception. Since China’s yards have historically been highly dependent on building bulkers, efforts by some yards to survive in the current market are focusing on trying to diversify their product mix.

Orderbook Pressure
As shown on the Graph of the Month, the total orderbook at Chinese yards has shrunk notably in recent years, standing at 1,933 vessels of 111m dwt at the start of 2013, down 50% in terms of dwt since the start of 2009. This decrease is due to the surge in deliveries and the recent drop in contracting. In 2007, over 2,000 orders of a total 106m dwt were placed at Chinese yards, falling to 31m dwt in 2009. While contracting picked up slightly in 2010, it has since continued to fall, and in 2012 orders for only 451 vessels of 19m dwt were placed, the lowest level since 2002.
Since bulkers have previously accounted for the majority of contracts at Chinese yards (74% in 2007-11 in terms of dwt), the considerable drop in bulkcarrier newbuilding orders in recent years has had a particularly negative effect on Chinese yards.

Domestic Owners Branch Out
Since the onset of the recession, the contracting patterns of domestic and international owners have diverged. The share of bulkcarriers in contracts placed at Chinese yards by international owners has remained relatively stable at fairly high levels of over 60% in terms of dwt. Meanwhile, the share of bulkers in domestically owned contracts has dropped significantly, from 84% in 2010 to 30% in the year to date.
A large part of this drop is due to the increased share of tanker contracts. Orders for tankers have risen so far this year to 2.9m dwt, up 42% on domestic tanker contracts in full year 2012. This is largely due to China’s oil security strategy, which aims to up the proportion of imports carried by Chinese-flagged tonnage to 60%. This has led to 13 VLCCs being ordered by domestic owners at Chinese yards in the last year.
Domestic owners have also diversified into a range of other more specialised vessel types. In terms of contract value, orders for vessels other than tankers and bulkers accounted for an estimated 61% of domestic orders at Chinese yards last year. While international owners have also invested an increasing amount in offshore units at Chinese yards in recent years, contracting levels for other specialised vessel types by international owners remain relatively low, with many Chinese yards yet to fully develop the necessary experience and international reputation for building such complex vessels.

Still Some Way to Go
The Chinese government is keen to address these issues, and has been actively encouraging contracts of non-bulker vessels. Yet generally low newbuilding interest in many sectors is still creating difficulties for yards. While current contracting volumes are still fairly low, the continued diversification of both Chinese owners and yards into more specialised markets will increase their experience and thus could eventually bring about some new opportunities for both.