RS Platou: Demand for Newbuilds to Improve

According to the RS Platou’s 2013 Research Report, released few days ago, ordering activity fell by 30 percent in 2012, for the second year in a row. The main issues were slower economic growth and high fleet growth in most shipping segments, resulting in low freight rates and thus lower demand for newbuildings.

Demand for newbuildings was slow in the first half of 2012, with only 3 mill compensated gross tons (cgt) of new orders registered per quarter. During the second half of the year, the ordering activity picked up to above 5 mill cgt per quarter, which was still significantly below the estimated quarterly building capacity of 8 to 9 mill cgt.

RS Platou has roughly estimated that owners invested 30 bill USD in conventional ships in 2012, a significant reduction from the previous year’s 50 bill USD. Chinese shipyards were awarded 40 percent of all orders this year, closely followed by the Koreans, who took 38 percent. A third of all new orders in China were from domestic owners, while in Korea the share was only 10 percent. Japanese yards took 15 percent of the orders, of which three quarters were from domestic accounts.

Expectations for 2013

The main driver of the shipping industry, world GDP growth, is expected to be marginally higher in 2013 than it was in 2012, namely 3.4 percent. Based on the historical correlation between the world GDP growth and tonnage demand for the world merchant fleet, RS Platou expects a healthy growth of 5-6 percent in demand for 2013. RS Platou anticipates fleet growth at the same level, taking into account some delays and cancellations of orders, combined with a continued high level of removals. The company therefore predicts the utilization rate for the merchant fleet to remain at 84 percent in 2013. This should result in freight rates below break-even in the major shipping sectors and thereby mitigate owners’ willingness to order new ships.

Another obstacle for owners who want to order new tonnage is securing finance, as banks have become more reluctant to finance projects without any charter commitments. With low demand from the major segments, a higher focus may be seen on smaller, industrial segments. There is an increasing interest in new eco-designed ships. However, all in all RS Platou expects total demand to remain subdued. According to their estimates, demand may reach 20 – 25 mill cgt in 2013. Building capacity is expected to decline, as shipbuilders are struggling in a low price environment.

At the present price level, the building capacity may be reduced to roughly 35 mill cgt, within a couple of years as some shipbuilders will cease to exist and others will do their utmost to reduce capacity in order to survive. In conclusion, RS Platou therefore expects a continued downward pressure on newbuilding prices in 2013. However, as the price level at the end of 2012 is getting close to the variable cost level, the company do not expect a significant drop in the already low prices, unless there is a meaningful change in input prices or exchange rates.

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Shipbuilding Tribune Staff, March 12, 2013