Marine and Shipbuilding Monthly Journal
Seoul Ra-11997(ISSN: 2005-3061)


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    2012 New Year of domestic shipbuilding and marine and maritime industry

    Beyond the limit, 2012 Shipbuilding and marine and maritime industries?
    During the year 2011, the domestic shipbuilding and marine industry as a whole showed a smooth recovery. Domestic shipbuilding companies in October 2011 kept market share position as the undisputed global leader by awarding a total of 12.28 million CGT, while taking the world half the ship's orders.
    One of the greatest features of the 2011 is that the demand for LNG is growing for oil price and the replacement demand for nuclear power,

    Currently for LNG by 2030, in Asia-Pacific region, the demand of 3 million tonnes per year is expected and considered gradually expand the market, and the order of LNG vessels such as LNG carriers and LNG-FERU are increasing.
    In addition, in terms of the general vessels, other than large crude carriers (VLCC) and bulk carrier in the area the past, the order of value-added vessels was followed and also, the orders of transport and maritime affairs showed a sharp increase.

    On the other hand, in 2012, with the European financial crisis in the world market it is estimated to more increase the risk of decline for ship orders than in 2011, half of 2010.
    And staring from 2013 when the order in preparation for the 2015 or more that the oversupply of the market is relieved, it begin the world tanker order and is expected to enter the '3 year cycle recovery, and a 3 year boom' for the cycle linked from 2003.

    From this point, it’s because, followed by tankers and the orders, worldwide orders backlog is estimated to enter the increased sector.
    From the supply-demand balance of the price level the price is rising and from accumulation of orders pricing power of shipbuilders occurs, and thus it is expected to continue to boom in 2016 when the oversupply of all types of ship is relieved.
    However, in 2012, with the order decreases and continuous backlog reduction it is estimated for the ship price to fall somewhere even further.

    I. The prospect of 2012 Shipbuilding and marine and maritime industry,
    1. The direction of the shipbuilding industry in 2012?
    In the period of the second half of 2010 and the first half of 2011, orders for large container vessels have been mainly done. However, due to financial crisis in Europe, with the sluggish performance of the ship company and financial downturn first half of 2012 is expected to decrease by a container ship orders, bulk and tankers are estimated to be last recession similar to in 2011 and eventually in 2012, all of ships such as container, tanker and bulk would seem to be recession.
    However, like from 2009 to 2010, it seems not happen about large scale of the cancellation of ship and delivery delay. Plates prices, key indicators of the price decision are expected to be weak point at some point in 2012 compared to prices in 2011.
    As merchant Shipping Order 2011 focuses on the large container ships of Chinese shipbuilders that experienced difficulties in securing a work, it expects, may attempt to secure orders by cutting the prices at some point in early 2012. On 2011, the container prices that seemed only rise at some point are also likely to be reversed with declining conditions and global prices are getting continue to decline.
    It’s expected ship-breaking amount again in 2012, based on large-scale dismantling of bulk having a severe oversupply records 32 million DWT and then large-scale dismantling is expected to continue in bulk mainly.
    The overall freight and all vessels prices are expected to go trough a gradual recovery in the year 2013. (See Figure 1).
    With sluggish quotes of the general merchant ship, the merchant sector in domestic big 3's order backlog and revenue share is expected to decrease rapidly.
    Instead, due to increased sales of drillship and production equipment, Samsung Heavy Industries in 2010, Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering in 2013 are expected to transform into marine offshore oriented business.

    (1) View for the main vessels
    1) The first half of 2012, outlook for container ship orders?
    By September 2011 it has been ordered a cumulative 8.28 million CGT container ships. On 2009 0.53 million CGT, 2010 4.04 million CGT, 2011 Sep. cumulative orders 8.28 million CGT respectively, it maintains improvements since 2009.
    But due to the downturn in financial markets after the European financial crisis in August, monthly ship orders shows sharp drop since August 2011.
    According to Clarkson Outlook, 2012 Container Trade / Fleet Balance would be worse from 1% in 2011 to 0% in 2012. It’s because container shipping quotes are predicted of deficit for most orders.
    Since the financial crisis in Europe where ship finance goes over 80% happens, it’s expected that the circumstances of the progress of European financial crisis and the direction and rate of recovery dominates the container order.
    In addition, bulk orders of 2011 has become the basis for orders slowdown in 2012 and then orders in 2011 compared to 2012 is estimated to be reduced.

    Container ship maintaining a steady order volume among general of merchant marine is likely to resolve for oversupply faster than the tanker and bulk container ships. First, considering the percentage of fleet that is expected to delivered later compared to the world fleet it, currently 29.9%, dropped to previous levels of 2005 (see Figure 2).
    In addition, the container fleet compared to traffic is expected to be 10.5% from 1999 to 2010 and approximately 10.7% by 2014 including fleets to be delivered. As a result, the cargo volume compared to the normal level was assumed to be 10.5% level.
    And the average dismantling quantities from 2000 to 2011 would be dismantled steadily around 75 million TEU per year.
    According to these, when estimating increase volume in container traffic in the future and appropriate scale it results in insufficiency in 2015, and when calculating the order volume based on about 2.5 years it is expected to be resumed to the level of 1.22 million TEU in 2013 and 1.99 million TEU in 2014, approximately nearly 1.99 million TEU in 2003, the order of the prosperity level.
    As it were, in the year of 2013, supply and demand balance that a stable order of container vessels more than 1 million TEU can be leaded is expected (see Figure 3).

    2) The first half of 2012, prospects for bulk order?
    With basis in September 2011, cumulative order volume of bulk is 5.23 million CGT which is the plunged orders in 2011 after 20.89 million CGT in 2010, 2,089. In 2010, while BDI is rebounded temporarily and followed the order, but in 2011 it has continued to maintain a low level. According to the industry, BDI outlook in 2012 is expected to be 1,600 ~ 1,700 PT being negative (Figure 4).
    However, some shipbuilders in China and Korea also expect to be improved at their bulk sector more than 2011.
    Considering severe recession and increased dissolution in orders in 2011 and the recent rebound in the used vessel at some point, it is expected to show a slight improvement rather than the order in 2011.
    However, as with the container due to the financial crisis in Europe the orders of at least the first half of 2012 is likely to be inactive.
    The bulk orders to the world market maintain delivery market by 2013 to be all-time high level, and the amount of traffic compared to the percentage of fleet by 2014, will remain to be 17% among the highest cost followed by none of the latest excessive supply(see Figure 5).
    Also, with the rate of fleet to be years in 2017 levels are expected to revolve into the level of excessive supply. However, while it comes to dismantle the most active dissolution, the amount of dismantling to the period of October 2011 exceeded the amount of 1985’s. However, the dissolution quantity compared to fleet have not met by 5% that is lower than 1985 levels.

    3) The first half of 2012, tanker orders outlook?
    September 2011 standards, the cumulative tankers orders were aggregated into a 1.69 million CGT. Compared to 7.15 million CGT on 2010 it’s fewer away, and among three types of vessel were the least. Despite the global economic slowdown since the second half of 2010, rising oil prices and oil consumption growth concerns are considered to induce slowdown in orders.
    All vessels prices and WS freight index are expected to continue to decline and the oversupply is expected to continue through 2012, phase of recovery to expect orders in effect is not easy. However, as bulk, the used vessel prices rebounded recently and expectation of recovery somewhere are established.
    Europe, but due to financial crisis as same with container ships, ordering up to at least the first half of 2012 is likely to drop, and if order is resumed, only some vendors are expected to receive benefits.
    For tanker market charging approximately 35% of orders worldwide, the oversupply has been intensified as the orders being occupied amount of 36 million DWT since 2008 are being continued by 2012 for five years.
    But the remaining backlog in the future, the contrast ratio of the fleet is now down to pre-2006 levels as the glut of container ships as well as relief and is likely to enter into early stage.
    But due to the fleet already delivered or scheduled for delivery, the ratio of surplus fleet surpassed 15 percent from 2009 and 2012 and 2013 is expected to exceed 21% (see Figure 6).
    Especially backlog rate is lower than bulk carriers, but dismantling is poor adversely and therefore the entire fleet of the support portion is less than 2% followed by a dark situation of excess usage.
    In some cases, such as in 1985 given approximately 10% of the entire fleet only in an year was dismantled it’s thought to be a signal of business transition that dismantling activation is fast. In Figure 7, the rate drops with glut of vertices in the year 2013, but the point that drops below 10%, previous levels of excessive point is estimated at 2016.
    Therefore, it is expected to begin for the order considering this situation in 2013.

    4) The first half of 2012, LNG ordering outlook?
    Figure 8 shows that the long-term net increase in traffic and LNG orders have shown a high correlation with time interval of the two years. It is considered that net traffic decrease in the year 2011-2012 affects the order interval from 2008 to 2010.
    However, with the increase of long-term LNG contracts since 2013 in net base it was ordered for 45 September 2011, 3.61 million CGT.
    With net increase in traffic in LNG contracts to the present alone, at least more than 20 to 30 LNG vessels annually by 2014, are expected to be ordered in the industry. Given combined cycle due to power plant accident in Japan and increased demand in China and India, the growing demand for LNG traffic in the contract is expected to grow further.
    However, due to the surge in orders speculative orders in 2011, a slight decrease for the orders in 2012 is predicted.
    A large LNG ship orders erupted in 2011 after four years is based on long-term contract to supply LNG sector by default but it is estimated to contain speculative demand. 30 new orders of LNG ships reduced in 2012 compared to the previous year are expected, but due to financial crisis of European vessels in certain times of credit crunch, evenly distribution of the orders rather than an intensive annual orders is considered.
    In case of combining existing LNG division long-term contract and LNG volumes to be supplied to Europe and Asia in addition, 2014-2020 requires at least 200 lines for new LNG vessels and therefore, by 2017, an annual average of new orders is expected to be approximately 29 ships of LNG carriers.
    New orders of LNG vessels under long-term supply contracts that has been done previously are expected to be the average annual 21 boats during the period 2012-2014.
    Considering the long-term supply contracts that has been done previously additional required fleet of LNG size from 2014 to 2017 is estimated to be approximately 106, and considering the 49 boats per 2011 shares, by 2014, adding approximately 57 new order of scale of LNG is the definitive.
    Taking into account Natural Gas Demand Forecast to 2020, assuming the proportion that must be met by LNG among the additional required supply compared to the previous ordered volumes to be 40% in Asia and 15% in Europe, new LNG line required to meet the demand for Asia and Europe is expected to be about 70 boats to the year of 2017.

    2. The direction of the marine industry in 2012?
    Oil prices are still maintaining a high level and therefore, long-term order outlook is still bright. However, in the first half of 2011 with a surge of the orders for drill ship and LNG line, orders in first half of 2012 is likely to weaken somewhat.
    In the case of drill ship, to be affected by ship financing is considered to be a factor that the orders could be weaken.

    (1) In 2012, expected order of marine plant?
    Due to the ongoing decline of existing blocks, it should be newly produced for 44 percent of oil production in 2020 and approximately 50% of natural gas production for world production in 2030.
    Particularly in a condition of being saturated for land and offshore development, because the development of a new large scale deep water blocks is inevitable, when considering the global supply and demand on oil, the prices of oil being persisted in $ 70 or more, and the impact that near-term oil prices drop affects facility investment is likely to be limited (see Figure 9).
    Because of the low success rate of drilling in deep water development, it requires a large number of drilling equipment compared to development of land, and 50 percent of the drilling equipment being approaching to the age of 30, it’s about to happen to demand for replacement equipment.
    At Figure 31, it appears that drilling investment among deep-sea sectors are expected to grow 9.1% from 23 billion U.S. dollars in 2010 to 60 billion U.S. dollars.
    When considering 40% among these as the drill ship investment, new orders for 123 vessels from 2,012 to 2,015 could be expected. Following the drill ship, the production facility is expected to be authentic from the year of 2012.
    The three domestic large shipbuilding companies being competitive in terms of technology and experience for drill ship and production facilities are exclusive in the orders and is expected to recoup the decreased order of merchant vessels.
    Domestic shipbuilding companies are experiencing the worsening profitability while the volume of low prices since 2009 is reflected to the sales. In 2012, with increased volumes having low prices, the profitability less than the previous year is expected.
    Assuming vessels profitability(gross margin) on the basis of the spread view, container ships and LNG line awarded in 2011 is difficult to expect the profitability of two digits same as the past.
    For drill ship, when assuming the profitability of contract in 2008 is approximately 15%, the profitability in 2011 is expected to be 10% range.
    Thus, from the second half of 2012 that start to be reflected for sales awarded in 2011, the sales of marine parts is increased and deteriorated merchant sales is expected to offset the sector's profitability quickly to some extent.
    Depending on the order volumes and construction experiences, the degree of protecting profitability is expected to vary. Korea 3's business structure is already reorganized to the marine center enough not to be compared in the early 2000s.
    Looking at Figure 11 and 12, marine sales in 2001 is only 17%, but it was extended to 35 percent in 2010 and with the base of quarter-end of February 2011, marine order backlogs are already in excess of 50 percent of all of order backlog.
    It is seen that the conversion of business structure is due to increased demand for deep water natural resource development projects rather than a temporary effect of a big competition with China and the contraction of vessels market (see Table 1).

    (2) In 2012, expected orders of offshore wind power?
    According to Offshore Wind Power Market Analysis and Forecast to 2020 recently published, the worldwide offshore wind power market is expected to grow 37% from 4.8KW in 2011, to 80KW in 2020.
    For the last 10 years installed capacity increased from 54MW in 2001 to 2,863 MW in 2010, the average annual growth rate reaching 55,5%.
    This growth were analysed to be due to the newly installation of 2,119 MW facility in the UK in 2010, and 749MW in Denmark in 2007. The next decade to 36.8 percent for annual growth rate, the total installed capacity in 2020 is expected to reach 80044 MW.
    The outlook is attributed to expectation for the additional installation for the UK 13KW and China 2,000 MW.
    Meanwhile, China is expected to become the 2nd in the world following the UK, with having surpassed Germany in 2018. While, in 2010 UK had the global market share of 47% in the base of the installed capacity but expected to decline to 31% in 2020, China was expected to increase from 4 percent in 2010 to 14.3% in2020.
    These Chinese activity is based on continued investment in the development of large-scale offshore wind farms. Currently known plans to develop major offshore wind farm in China is 1,500 MW China Sea pingtang scale (Pingtan) plan, 1,250 MW in the South China Sea Lufeng Jiahu Bay plan, 1,000 MW-scale Yellow Hebei plan and 1,000 MW size of the Bohai Bay plans.
    The future growth of the world's offshore wind market is expected to lead to the growth with the associated marine equipment industry.

    II. Summary
    Global ship finance scale based in balance at end of 2010, according to Marine Money reaches 382 billion dollars in which 319.4 billion dollars, 83.6% among these, was achieved by European bank such as HSH Nordbank, RBS, Credit Agricole CIB, DnB NOR Bank.
    Except for such that Scandinavia bank of DNB NOR and NordeaDeviated a little bit from the risk due to the recent financial crises of european countries, it even reaches 2,610 billion dollars, 68.3%. Recently, Asian banks such as China and Japan has a growing proportion but because the positions of European banks are very absolute, P Ⅱ GS countries' financial crisis are shaking the global ship financing market as a whole.l

    Syndicated Loan scale on the third quarter of 2011 is actually $ 11.8 billion, decreased 43.8% compared to the previous quarter, and this rapid reduction is max. following 61.9%, the fourth quarter of 2008, and 52.0%, the second quarter of 2009.
    Accordingly, Syndicated Loan scale of the third quarter of 2011 plunged to a level of the fourth quarter of 2008(11.2 billion dollars) and recovery of the ship finance market is considered to be possible in the second half of 2012.
    Basically it is expected to need a considerable amount of time in European banks' assets depreciation and capital increase, and although this process is proceeding smoothly, to resume ship financing immediately after capital increase could be difficult. Thus the outlook in 2012 is not bright.

    ■ References
    . Energyfiles
    .RS Platou
    .Ministry of Knowledge Economy, Republic of Korea
    .KMI, World Shipping Market Outlook 2012
    .Busan Marine Equipment Association
    .Hana Financial Management Institute
    .Institute for International Economics
    .Hanwha Securities Research Center
    .NH Investment & Securities
    .Solomon Investment Securities
    .Kiwoom Securities
    .KTB Investment Securities
    .Marine and Shipbuilding Monthly Apr, Sep, Oct-2011

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