Uncertainty Reigns in Newbuilding Sector, Says Braemar Seascope

Uncertainty still reigns true in the global shipbuilding sector with many factors influencing either a return to ordering activity or a continuation of the reduction in interest in newbuildings.

“The best case scenario for shipbuilders is for ship finance liquidity to return and for a cut in Chinese overcapacity. There needs to be renewed interest in eco-designs and ships with options such as LNG or Ballast Water Treatment Systems and then possibly any increased demand will support pricing from the shipyards’ point of view,” said Mark Williams, Research Director at Braemar Seascope.

The worst case scenario is for a continuation in the global credit crunch; weak freight markets continuing to suppress newbuilding demand; input costs and forex turning against the builders; the low point in the contracting cycle extending and also more cash flow problems and failures.

“Investors are unlikely to invest in new tonnage this year without a fair prospect of economic return even if there is a short term recovery in freight markets, with many believing more needs to be done to encourage a return in confidence in the newbuilding sector,” Mr Williams told delegates attending the latest Marine Money conference.

While higher scrap prices should encourage owners to renew their fleets, the ongoing credit crunch and weak freight markets are reducing the economic life of today’s ships, which are now depreciating to scrap value in their teenage years or early twenties.

Mark Williams said that newbuilding prices tended to follow demand with input costs only providing a floor which can be broken through. “When the global shipbuilding backlog is less than about 18 months, yards tend to cut prices for competitive advantage, however prices appear to be bottoming out. There is far too much shipbuilding capacity out there. 2012 was the peak delivery year since the mid-1970s. So it is a question of who will blink first.”