The core business revenue of 80 major shipbuilding companies declined 22.4 percent to 84.1 billion yuan ($13.7 billion) from January to May, according to data from the Ministry of Industry and Information Technology. [Photo / Provided to China Daily]

Companies struggle to stay afloat as sluggish demand batters sector

CSSC Jiangnan Heavy Industry Co Ltd, the first domestically listed shipbuilder to unveil interim results, reported losses and said it saw a sharp decline in revenue for the first half.

The company said it was hit by a bearish shipbuilding market, shrinkage of machinery demand and intensifying competition in the market.

CSSC Jiangnan Heavy Industry - the Shanghai-listed arm of China State Shipbuilding Corp, one of the nation's largest shipbuilders - said late Sunday that its first-half revenue dropped 39.49 percent year-on-year to 319 million yuan ($51.63 million), and it reported a loss of 61.52 million yuan for the same period.

It added the market is still sluggish and that orders are drying up, which dragged down both its core business and its non-shipbuilding revenue.

Last year, the company posted 76.05 million yuan in net losses, down 299 percent year-on-year, a stark contrast with the 38.21 million yuan in net profit reported in 2011.

Analysts said the shipbuilding industry is still deep in the doldrums and supply has exceeded demand by 30 percent, implying that overcapacity still persists even though no ships are expected to be manufactured in the next few years.

Data from the Ministry of Industry and Information Technology showed only 20.6 million deadweight tonnage (DWT) in orders were completed from January to June nationwide, down 36 percent year-on-year, and that Chinese shipbuilders' orders in hand dropped 13.4 percent to 108.98 million DWT as of the end of June.

The core business revenue of 80 major shipbuilding companies declined 22.4 percent to 84.1 billion yuan from January to May.

In a bid to return to profits, CSSC Jiangnan Heavy Industry accepted orders for products such as steel structures, machinery and other shipbuilding equipment projects. The company is scrambling to get more orders from its non-core business sector to secure its annual target.

Meanwhile, as shipbuilding companies are posting hefty losses, the major Chinese banks are starting to tighten credit lines for the sector, which may compound difficulties and make it more difficult for the companies to overcome the current slump.

A Reuters report said that shipbuilders are being required to collect at least 15 percent in down payments from their clients per order before applying for loans from commercial banks.

"We've seen many shipbuilders struggling to continue their business through shifting their focus to tertiary industries, such as logistics, and accelerating steps to eliminate outdated capacity," said Wu Jiangtao, an analyst with Northeast Securities.

Guidelines to promote the development of the nation's shipbuilding industry are expected to be rolled out in the second half.

The measures may include tax cuts for shipping companies and a special fund to subsidize the elimination of old ships to support the ailing shipbuilding and shipping industries, Wang Jianmin, vice-president of the Shanghai Shipping Exchange was quoted as saying by the Oriental Morning Post.

"It's painful for shipbuilding companies to wade through the industrial downturn, but that's the cost of a market-oriented industry," said Liu Pan, an analyst with Xiangcai Securities.

Insiders all seem to have a dim view regarding an immediate recovery of the shipbuilding industry.

"For shipbuilders, 2011 was gray, 2012 is black, and 2013 will be bloody," said Ren Yuanlin, the chairman of the Yangzijiang Shipbuilding Group Ltd.

Ren added that he expects the bearish conditions to persist for at least five years.