China’s radical development of its shipbuilding industry has resulted in it emerging as a major player in the tanker sector. However, like other nation’s shipyards, it faces the on- going scenario of falling orders in an already oversupplied market and tough pricing decisions as they try to secure future business. Current extremely weak industry earnings and the general lack of confidence amongst owners has led to a sharp fall in ordering activity, raising the question of shipbuilder’s abilities to maintain pricing levels whilst trying to fill expanding capacity. The fear of a second global economic downturn is only adding to these woes.
The world tanker orderbook currently stands at 84.5 million dwt (25,000+ dwt). Korea dominates  with  a  52%  share,  followed  by  China  with  31%.  Japan,  once  the  largest shipbuilder in the world is trailing behind at just 9%. In terms of VLCC construction, Korea leads the way with 60, two ahead of China, while Japan is some way behind with just 14. In fact,  Japan  hasn’t  taken  a  single  VLCC  order  this  year  and  those  that  are  under construction are mostly for domestic owners. Japan has effectively ceased to trade as an exporter of tonnage because of the high cost implications and currency factors.
Given the dearth of orders, we would think that prices for a new VLCC are now in the $90s for Korea and in the $80s for China. However, with so few fresh orders for any type of vessel at yards and increasing amounts of slots to fill, yards are likely to need to reduce prices further, despite already eroding margins. In addition to these pricing pressures, there are then further major concerns in this sector from the banking position. Bank’s willingness to finance vessels with current asset values way below their purchase price and no immediate prospects for a rebound in the tanker industry is already being questioned. This will only add further downward pressures on the shipbuilding industry.
However, in recent years we have seen the Korean and Chinese governments stepping in to support these national shipbuilding interests. In China’s case the government support for   domestic   shipyards is expected to continue and in such   circumstances   there will be a shift from commercial to government support for the shipbuilding industry. Recent suggestions of potential large orders at Chinese yards for VLCC tonnage for  domestic owners could be a threat to VLCC market prospects but it does indicate state support for Chinese finance for  Chinese ships  for Chinese business,preserving Chinese jobs.