Financial Services Association, September 13 (Reporter Hu Haoqiong) A ship that has almost been built is docked at the pier of Changxing Island. The two barges are docked side by side. The gantry crane is removing one yellow container guide frame after another from the barge and installing it on a new 13,000 TEU ship ordered by Taiping Shipping (PIL) in the dock.

This is Jiangnan Shipbuilding, a wholly-owned subsidiary of China Shipbuilding (600150.SH) controlled by China Shipbuilding Industry Group Co., Ltd., and the Finance Association reporter saw on the scene that the civil ship construction area in the shipyard has large and small modules and segments. In the factory area's collection and distribution center, workers are busy distributing, shipping, and transporting them to the operation area.

Shipyard production capacity is tight, yet shipowners are still “crazy” placing orders. Jiangnan Shipbuilding told the Finance Association reporter that at present, orders for new civilian ships have basically been scheduled until 2028. The company is trying its best to improve efficiency and expand production capacity, with the goal of doubling production capacity in the future.

Increasing orders have boosted the shipyard's performance. The relevant person in charge of Jiangnan Shipbuilding told the Financial Federation that the benefits of the entire industry are currently in a good period in history, and the shipyard's performance has increased by a certain margin compared to the previous two years.

Strong demand pushes ship prices to rise further

The predecessor of Jiangnan Shipbuilding was the Jiangnan General Administration of Machinery Manufacturing, founded in the 4th year of Tongzhi in the Qing Dynasty (that is, 1865). The name was changed to Jiangnan Shipyard in the early 1950s, and changed to a corporate enterprise in 1998. Through asset restructuring and integration, Jiangnan Shipbuilding currently covers an area of 5.17 million square meters, with a total shoreline of 3,561 meters. It is divided into three production areas. It can build various types of Navy ships, a full range of liquefied gas carriers, large/oversized container ships, and special ships such as business ships, research vessels, and icebreakers.

In the first half of 2024, demand continued to be strong in the shipbuilding market, driven by cyclical changes in capacity and continued green changes in the industry, market structural growth momentum increased, and batch orders continued to be released.

“None of us anticipated that this year's container ship orders are still growing rapidly in a situation where container capacity is relatively saturated.” The person in charge mentioned above told the reporter that Jiangnan Shipbuilding has received an order for 5 new 0.013 million container ships this year.

According to Clarkson's research and monitoring data, as of September this year, Jiangnan Shipbuilding currently has 100 orders, including 26 container ships (in August of this year, the number of handheld orders was 81, and 27 container ships). According to a Financial Services Association reporter, at the end of June last year, Jiangnan Shipbuilding had a total of 70 orders, of which 21 were ordered by container ships.

At the end of August alone, Jiangnan Shipbuilding added a number of new orders. Among them, with Eastern Pacific Shipping Pte. Ltd. (EPS) signed a contract for the construction of 6 150,000-cubic meter very large ethane carriers (ULEC); signed a contract with Vietnamese shipowner Asia Pacific Shipping Co., Ltd (ASP for short) for the construction of 2 50,000 cubic meter medium liquefied petroleum gas/liquid ammonia carriers (MGC); signed a contract with global shipping giant Navigator Gas (Navigator Gas) to build 2+2 medium liquefied ethane carriers (MEC), etc.

A Financial Services News reporter learned that several liner giants have also recently announced plans to order new ships one after another. A.P. Mueller-Maersk will renew its fleet by ordering new ships and leasing them. The total number of orders will reach 50-60 ships, with a total capacity of 800,000 TEU, of which approximately 300,000 TEU will be custom-built ships, and the fuel will be methanol dual fuel and liquefied gas dual fuel.

COSCO Maritime Control (601919.SH) also recently announced that it has ordered 12 14,000 TEU Latin American extreme high-cold methanol dual-fuel container ships.

“In the current market environment, shipowners still choose to place orders to build ships, and orders are generally delivered after three years, which means shipowners are generally optimistic about the future shipping market. At the same time, the trend of green environmental protection is also encouraging shipowners to invest more to upgrade capacity.” The person in charge mentioned above said.

However, with regard to the overall trend in the shipbuilding market, the aforementioned person in charge believes that they tend to be cautiously optimistic. “Especially after the 2008 financial crisis, shipyards experienced a period of downturn in the shipbuilding industry, and we are all cautious about future market development. At the same time, with the arrival of the peak of delivery from 2026 to 2027, OEMs are facing a peak in demand at that time, and it remains to be seen whether they can match the needs of shipyards. Due to various factors, our shipyards will also tend to be cautious when taking orders.”

The rapid increase in orders has boosted shipping prices. The person in charge also told the Finance Association reporter that due to relevant factors this year, there is a shortage of shipping capacity, which has led to a sharp rise in freight rates in the shipping market. Liner companies have obtained better profits and pushed them to book ships on a large scale. “The market price for this year's 0.015 million tank dual-fuel container ship has increased by about 10% compared to last year's high, and the price of one ship can reach more than 0.2 billion US dollars.”

Not only are container ship prices rising, but gas shipping prices are also rising. In response, the relevant person in charge mentioned above stated that it is also related to market supply and demand. “Shipyard production capacity is already limited. There are fewer shipyards that can build large liquefied gas carriers than container ships. The threshold is higher, and production capacity is becoming more limited. At the same time, shipowners' demand is increasing, and ship prices are naturally rising.”

Production capacity is tight and plans are to double production capacity in the future

Currently, Jiangnan Shipbuilding has scheduled orders for new ships with civilian products until 2028. There are 2 main production lines, which are used to build large liquefied gas carriers and large container ships, respectively. However, since Jiangnan Shipbuilding has a total of 2 civilian docks and the location of the shipyard is limited, it is expected that this year's new order will not start construction until the end of 2025 to 2026 at the earliest.

There is a certain lag in the shipbuilding industry. After the shipowner places an order, the shipyard will not start construction immediately; it is necessary to make a series of production preparations, including procurement of raw materials, “queuing up”, etc. “Overall, it will take almost two to three years from order placement to delivery. The ship to be delivered in September of this year is actually a contract signed in January 2022.” The person in charge mentioned above introduced it.

There are a total of 2 shipbuilding and civilian shipyards in Jiangnan. Up to now, less than 6 batches have been “turned over” at the Jiangnan Shipbuilding and Civilian Shipyard. Shipyard resources are limited, so production capacity is also limited to a certain extent.

However, tight production capacity is not a problem unique to Jiangnan Shipbuilding. Looking at the shipbuilding market as a whole, almost all of the major shipyards are scheduled to be delivered until 2028. This also means that within 2028, shipyard docks will be tight, and there will be few vacancies left for shipyards to take orders. Among them, in terms of liquefied gas ship production, due to its high threshold, domestic shipyards that can build large liquefied gas carriers have fewer resources and more limited production capacity.

Jiangnan Shipbuilding plans to improve efficiency through measures such as increasing the “turnaround” rate of shipyards, increasing the level of automation, and process reengineering, and aims to double overall production capacity without changing the original basic conditions.

“We plan to increase the number of 'overturning' docks to 6-7 batches next year, and basically 8 batches from 2025 to 2026. The higher the frequency of shipyard overturns, which means a further increase in the number of ships to be built later.” The relevant person in charge mentioned above said that many of the processes originally planned to be completed in the dock can also be carried out ahead. This is also the reason why the segments are getting bigger and bigger, so the shipyard only needs to quickly splice the segments into the shape of a ship within the dock.

Judging from the shipbuilding cycle, at present, the shipbuilding efficiency of Gangnam Shipbuilding is basically the same as that of Korean shipyards. Jiangnan Shipbuilding's current container ship construction speed can reach “844,” that is, 8 months from a steel plate to all parts of the ship, 4 months to combine them into a ship in the dock, and 4 months to complete the renovation at the pier. After completion, it can be tested and delivered.

The Financial Services Association reporter also learned that some of the construction processes in Jiangnan Shipbuilding will also use machines for production. “However, since ships are pure customized products, they cannot be completely automated; only some processes can be replaced by automation. A pilot line will be set up starting in the second half of this year to test automated operations in production lines such as cutting and parts disassembly. The other two production lines are expected to be completed by the end of the year, mainly for group components. After the components are assembled, they can be placed directly on the production line and automatically welded. This can reduce the dependence of production line operations on people while increasing unit output.”

Reduced costs and increased profit margins

As an important subsidiary of China Shipbuilding, the impact of fluctuations in Jiangnan Shipbuilding's performance on the performance of listed companies is intuitive. China Shipbuilding's semi-annual report shows that in the first half of this year, Jiangnan Shipbuilding achieved operating income of 16.213 billion yuan, an increase of 31.12% over the previous year, accounting for 45.02% of China Shipbuilding's revenue in the first half of the year; net profit to mother was 0.3 billion yuan, an increase of 58.73% over the previous year, accounting for 21.25% of China Ships' net profit to mother in the first half of the year.

The good news is that while orders continue to grow and ship prices are rising, comprehensive costs, including raw materials, are declining, compounded by gradual delivery at high prices. Jiangnan Shipbuilding's performance is expected to improve further in the second half of the year.

“According to the current construction situation, the ships delivered now are gradually shifting to high-priced ship orders. The ships delivered in the first half of this year were ordered two or three years ago. At that time, ship prices were low, and raw materials were high. The current market price level has risen sharply compared to when the market was low a few years ago.” The relevant person in charge mentioned above revealed that ships delivered in the second half of this year can already be profitable. The shipyard as a whole is expected to remain profitable in 2025, and orders for new ships delivered starting in 2026 are high-priced orders.

In terms of raw material prices, the prices of raw materials for shipbuilding have continued to fall since this year. According to “My Steel Network” data, the Steel Composite Index reported 150.6 points on January 2 and 118 points on September 6, a decrease of 21.64%. According to data from the China Shipbuilding Industry Association, at the end of August, the average price of 20mm marine steel plates in major regions was 3,749 yuan/ton, down 241 yuan/ton from month to month, and the average price of 6mm marine steel plates (tax included) was 4,065 yuan/ton, down 328 yuan/ton from month to month.

An agency analyst told the Financial Federation reporter that due to the downturn in the downstream construction industry, marine steel plate prices will continue to be low in the future, which is beneficial to the downstream shipbuilding industry.

In terms of cost control, the relevant person in charge mentioned above told the Finance Association reporter that Jiangnan Shipbuilding is currently implementing “Supply Chain Reform 2.0,” planning and supplier collaboration to reduce storage time. “From purchasing raw materials to entering the shipyard, the number of storage days has been reduced to more than 10 days from the original 39 days. As a result, warehouse personnel, floor space, and capital occupied by inventory will all be drastically reduced, and costs can be reduced.”

At the Jiangnan Shipbuilding and Distribution Center, a staff member at the scene told the Financial Federation reporter that in the past three years, through preliminary supply chain reforms, 0.03 million square meters of warehouses have been abandoned, and the warehouse area has been reduced by 30% to 35%.

In terms of other costs, as the “turnaround” of the Jiangnan shipyard accelerates, the fixed cost amortization of the shipyard will also decrease; on the product side, the company is also making lightweight designs to reduce the weight of ships and reduce material usage, thereby further reducing costs.