Chinese shippers place order for 50 supertankers

AP News
Posted: Sep 28, 2012 8:37 AM
Chinese shippers place order for 50 supertankers

BEIJING (AP) — A group of state-owned Chinese shipping companies have placed a $4.5 billion order for 50 supertankers, throwing a financial lifeline to China's struggling shipbuilders, a newspaper reported Friday.

The order adds to a multibillion-dollar flurry of investments by state companies in recent weeks — a key element in Beijing's carefully controlled effort to reverse a painful economic slump. The government has approved a wave of spending on new steel mills, subway lines and other corporate and public works projects.

The move also could help China, the world's biggest energy consumer, gain more control over its energy supply chain by owning the giant ships needed to import crude from the Middle East and elsewhere.

The supertankers were ordered by three of China's biggest shippers, China Shipping Group, Dalian Ocean Shipping Co. and China Merchants Group, the 21st Century Business Herald said. It cited the president of China Shipping and the general manager of Dalian Ocean Shipping.

Employees who answered the phone at the press offices of the three companies said they could not confirm the report or give other details such as where the tankers would be produced.

Chinese shipyards, which are the world's biggest shipbuilders by total tonnage, have been among the hardest-hit industries in the slowdown. Orders have fallen by more than half and shipyards are cutting jobs.

"Small and medium-size shipbuilding companies are either out of business or near bankruptcy," said Xia Xiaowen, an analyst for the China Shipbuilding Economy Research Center, a think tank in Beijing.

If the reports of new orders are accurate, "it will definitely be good news for those large manufacturers, and they don't need to worry about survival anymore," Xia said.

China's economic growth fell to a three-year low of 7.6 percent in the three months ending in June. That is healthy by the standards of the United States and Japan, where this year's growth is forecast in low single digits, but painful for companies that need higher growth to drive demand for new ships, factories and other assets.

Officials including President Hu Jintao have warned growth could decline further before rebounding later this year.

Some Chinese industries such as retailing and other services are relatively strong, helping to reduce politically dangerous job losses. But fields such as shipbuilding and production of steel, cement and solar panels have been hit hard by weak demand and excess production capacity. On Thursday, the country's biggest steelmaker, Baosteel Group, announced it was shutting down a mill in Shanghai due to weak demand.

Also Friday, a major shipbuilder, Guangzhou Shipyard International Co., issued a warning that its profit for the first three quarters would be down at least 50 percent from a year earlier. It blamed a decline in orders and ship prices.

The shipbuilding industry in Zhejiang province south of Shanghai lost more than half its jobs by late August, according to the newspaper Southern Weekly. Another paper, China Business News, said last month that shipbuilders in Jiangsu province northwest of Shanghai were carrying out "disguised layoffs" by giving employees extended vacations.

The supertankers in the latest order are known as very large crude carriers, or VLCCs, the second-largest class of oil tankers.

Government plans call for creating a vast fleet of 80 VLCCs by 2020 to gain more control over China's oil supply chain, according to a report by Credit Suisse analysts Gerald Wong and Louis Chua.

China is the world's biggest energy consumer and imports of oil and gas by sea are steadily rising even as economic growth slows, giving shippers and state-owned energy companies demand to fill additional vessels.

In a research note last week, Barclays said one major Chinese shipbuilder told its analysts orders for bulk cargo carriers had dried up and delivery of those under construction was delayed because customers hadn't paid for them.

"The oil- and gas-related vessels are providing some long-term hope to the beleaguered industry," the bank said.


AP researchers Fu Ting in Shanghai and Yu Bing in Beijing contributed.