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China’s Fleet Renewal Program Misses Mark

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January 21, 2015

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China’s Fleet Renewal Program Misses Mark

Cosco_Vancouver container ship 16x9

Newbuilding orders fell by 14.2 percent in China in 2014 compared to 2013, according to statistics released by China’s Ministry of Industry and Information Technology. A major slump in December reversed more positive figures between January and November which had shown a rise of 9.4 percent. Completed tonnage at Chinese yards fell 13.9 percent.

However, new orders resulting from the government’s shipbuilding incentive scheme are yet to be delivered, and COSCO, China’s leading shipping enterprise, has been active in its fleet renewal program.

Owners with Chinese flagged vessels receive a $150 per grt premium on the scrap price in China and a $150 per grt discount on subsequent newbuildings built in China.

COSCO announced this week that it scrapped 17 of its older vessels between September and December last year for a total of $51.2 million. The sales were mostly made up of containers and bulkers totaling over 900,000dwt.

Having scrapped well over 50 vessels over the course of the year under the government subsidies scheme implemented at the end of 2013, COSCO has managed to significantly lower the average age of its fleet, reports cash buyer GMS. The company expects another busy year of scrapping with the scheme still in place until the end of 2015.

Additionally, COSCO has secured a loan from China’s Export-Import bank to fund 53 newbuildings. The $1.75b loan will be used to order vessels from Chinese yards. The newbuildings are expected to include a 90,000dwt semi-sub, China’s largest locally built semi-sub to date, 300,000dwt tankers, 9,400teu container ships and fuel efficient bulk carriers. The new vessels are expected to have 20 percent better fuel efficiency than those they will replace.

China remained the world’s largest shipbuilder in 2014, winning 50.5 percent of all new orders placed worldwide, although the nation’s shipbuilding slump now enters its seventh year since the global financial crisis of 2008. Analysts believe that a sustainable market recovery is unlikely to happen this year, although the industry has made positive steps through restructuring. There are now around 300 active yards compared to 3,000 in 2010.

Putting shipbuilding into perspective with the rest of nation’s economy, the South China Morning Post reports that China’s economy grew 7.4 per cent in 2014, the slowest expansion in 24 years. It missed its annual growth target for the first time since 1998.

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