SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014 PAGE 1 OF 41 SHIPBUILDING MARKET MONITORING 2014 1Q Report N° 35 – June 2014 HEADLINES Shipbuilding Market: - The global orderbook continues the growth trend that began in 2013 after 5 years of decline, standing at 108M CGT. - In the 1Q 2014 global new orders increased 60% compared to the same period last year, accounting for a total of 14.5M CGT. - 9.7M CGT were delivered in the 1Q 2014. - China tripled the new orders compared to the 1Q 2014, and Japan doubles the con- tracts thanks to the enhancement of the Yen’s competitiveness through governmen- tal intervention. - European yards hold the 3 rd position in terms of value of the orderbook ($31.5bn) and new orders ($3.3bn). Japan follows with $29.5bn orderbook and $2.2bn new or- ders. News: - Asian financing brings new orders to their shipyards. Far Eastern banks increase their financing to European owners - Chinese Government’s policy for restructuring Shipbuilding Industry positions China as world leader in number of new contracts - Major shipbuilding countries promote local content by governmental support (Brazil, US, China, Korea, Japan), which is a threat to EU suppliers - European Commission DG COMP adopts Innovation Aid for R&D&I, including a clar- ification about Shipbuilding - Europe working towards a Blue Growth Economy, more modern, safer and greener maritime economy. - The EU adopts stronger rules to better defend its rights under Trade Agreements
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SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
PAGE 1 OF 41
SHIPBUILDING MARKET MONITORING
2014 1Q
Report N° 35 – June 2014
HEADLINES
Shipbuilding Market:
- The global orderbook continues the growth trend that began in 2013 after 5 years of
decline, standing at 108M CGT.
- In the 1Q 2014 global new orders increased 60% compared to the same period last
year, accounting for a total of 14.5M CGT.
- 9.7M CGT were delivered in the 1Q 2014.
- China tripled the new orders compared to the 1Q 2014, and Japan doubles the con-
tracts thanks to the enhancement of the Yen’s competitiveness through governmen-
tal intervention.
- European yards hold the 3rd position in terms of value of the orderbook ($31.5bn)
and new orders ($3.3bn). Japan follows with $29.5bn orderbook and $2.2bn new or-
ders.
News:
- Asian financing brings new orders to their shipyards. Far Eastern banks increase
their financing to European owners
- Chinese Government’s policy for restructuring Shipbuilding Industry positions China
as world leader in number of new contracts
- Major shipbuilding countries promote local content by governmental support (Brazil,
US, China, Korea, Japan), which is a threat to EU suppliers
- European Commission DG COMP adopts Innovation Aid for R&D&I, including a clar-
ification about Shipbuilding
- Europe working towards a Blue Growth Economy, more modern, safer and greener
maritime economy.
- The EU adopts stronger rules to better defend its rights under Trade Agreements
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
PAGE 2 OF 41
Restriction of use and Copyright notice
This report is intended for internal circulation only within the member-
ship of SEA EUROPE.
Due to copyright restrictions from the data sources, please contact SEA EUROPE
and ask for prior permission for any use of the information contained in this publi-
cation.
Summary Statement
Global newbuilding activity increased in the first months of 2014 continuing the trend
that began last year. Despite that it is too early to speak of recovery, signs of stabiliza-
tion can be seen globally.
New orders for all type of vessels have increased compared to the same period last
year. Bulk carriers have tripled demand, followed by gas tankers and other cargo car-
riers. Demand for these vessels is driven by the easy access to credit facilitated by
China and other Far Eastern Countries which are financing the building of new more
efficient cargo carriers built in their own countries. Demand for non-cargo carriers has
also increased. More efficient designs for reducing fuel consumption and to comply
with new international and European regulations for safer and less pollutant maritime
operations are driving the demand for these vessels.
European shipyards are increasing their activity and maintain a good position in terms
of value thanks to the specialization of the industry on Passenger, Offshore and other
specialized non-cargo vessels. However, Far Eastern countries continue leading the
shipbuilding market thanks to the governmental policies, cheaper production costs and
availability of financing. On the other hand, European marine equipment providers are
market leaders with a 43% of global shares. With the aim of increasing their market
shares, some Asian shipyards are offering considerable price reductions for installing
national equipment on board. In addition, the existence of market barriers for Europe-
an companies and the need of outsourcing part of the production to access these mar-
kets are issues which are challenging the European industry.
In order to face these challenges, European maritime technology industry continues at
the forefront of innovation and developing new technologies of the highest quality and
reliability. In the line of the above mentioned circumstances, it is expected that the
new environmental and safety requirements will continue bringing demand for inno-
vative high technology vessels and equipment, benefiting the European maritime
technology industry.
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
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GENERAL OBSERVATIONS
SHIPBUILDING FINANCING
1. Asian Shipbuilding Industries
Rapid growth in steel production capacity in Japan, South Korea and China facilitated the growth
of shipbuilding. Shipbuilding also requires skilled labour. Labour costs are a significant compo-
nent of vessel costs, and low costs in China – estimated to be between a 10th and a 15th of
OCED countries’ – have helped its shipbuilding grow. In recent years, however, skilled labour
shortages have contributed to rising wage costs in China. A third requirement is technological
knowledge. Traditionally, Japan and South Korea have offered superior technology and reliability
compared to China. However, following investment, China now produces better ships in more
complex segments such as ultra-large container ships of 12,000-14,000 20-foot equivalent units
(TEU). China is also now making inroads into the fast-growing LNG segment. A fourth input that
drives shipbuilding is government support. Many governments champion shipbuilding because
it creates skilled employment, stimulates related industrial activity and has potential political and
military importance. However, while political support for shipbuilding is important, financial
support matters more. For example, in South Korea shipbuilding is concentrated among the
chaebol (industrial conglomerates), such as Samsung Heavy Industries and Hyundai Heavy Indus-
tries, which receive strong support from policy banks and a significant proportion of South Ko-
rea’s export credit agency (ECA) funding. Similarly, in Japan, ECAs make buyer financing available
and facilitate low cost working capital for shipyards (which is crucial given the three to four-year
shipbuilding timeframe). In China, government support includes access to capital from govern-
ment agencies and policy banks and programmes to support buyers. It is focused on larger ship-
building companies such as China Shipping Development Company and China State Shipbuild-
ing Corporation. One final factor that has driven Asia’s shipbuilding dominance is the growth of
the offshore segment, prompted by the deep-sea drilling boom. Demand for Arctic Class semi-
submersible ships, which can cost up to US$1bn each, has soared. While the sophisticated drill-
ing equipment on Arctic Class ships is manufactured in Norway, the hulls (which represent 70%-
80% of the total cost) are built in either China or South Korea. Similarly, the dramatic boom in
shale gas in the US and Australia has spurred an increase in spending on LNG vessels of
almost 40% between 2008 and 2012.
Japan’s revival
Following the introduction of the package of measures aimed at reviving the Japanese
economy (including bond purchases and increased government spending) the yen was
depreciated by over a third against the US dollar. Most shipbuilding is priced in US dol-
lars so local currency depreciation improves pricing for buyers. Moreover, the risk of FX
volatility is taken by the shipyard, despite only 20% to 30% of the purchase cost being
paid up front. Japanese costs are now comparable to South Korea and China while relia-
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
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bility and consistency are considered superior: consequently activity increased. The flexi-
bility of Japan’s ECAs, Japan Bank for International Cooperation (JBIC) and Nippon Export
and Investment Insurance (Nexi) has also supported its shipbuilding resurgence.
South Korea
The shipbuilding sector and buyers of ships from the country have traditionally had easy access
to funds from ECAs and development banks, such as Korea Trade Insurance Corporation (K-Sure)
and the Export-Import Bank of Korea (Kexim) and policy banks, including Korea Development
Bank (KDB), Korea Exchange Bank (KEB) and the Korea Finance Corporation (KFC). However, the
South Korean government is consolidating some of the agencies that support shipbuilding.
While government support overall is certain to remain strong in the long-term, the restructuring
of support is having some short-term impact on financing availability.
Consolidation in China
China´s shipbuilding capacity tripled to 63 million DWT from 2008-2013. This explosive growth is
now causing problems as it is geographically dispersed but concentrated in the bulker segment
(an estimated 60% in 2012), which is the worst performing sector in recent years. State-owned
and policy banks support only 10% of shipbuilding companies. Despite frantic cost cutting by
some shipyards in order to win business, ship buyers have been careful not to simply give busi-
ness to the lowest cost shipbuilders. Instead, there has been prudent scrutiny of shipyards’
strength and the likelihood of closure. At the same time as consolidation of capacity is taking
place, the industry is trying to capture more of the higher end value chain, such as LNG and off-
shore vessels. To help strengthen China’s reputation in these segments, orders have been placed
by state-owned enterprises. In addition, China has worked to secure technology support and
supervision for such projects from Japan.
GTReview.com – 2014
2. Chinese policy banks continue to woo Greek owners
Lenders give priority to offshore, eco-design and hi-tech orders
China’s major ship finance institutions are continuing to court the top echelon of Greek
shipowners as part of their expansion strategy but are still restricting themselves mostly to
transactions linked to building tonnage in Chinese shipyards. Although newbuilding orders in
China are overwhelmingly for dry bulk carriers, a sector that accounted for 86% of yards’ ship
orders in the first quarter of this year, the shipping portfolio of the Export-Import Bank of China
is skewed towards crude oil tankers and offshore units, followed by bulkers and containers.“We
will continue to finance conventional vessels, but eco, hi-tech and offshore will be the top priori-
ties,” said Chen Bin, deputy general manager of Cexim’s transport finance department. According
to Cexim, China’s builders scooped 46% of ship contracts in the first quarter and a 44% share of
offshore orders. In the offshore sector, first-quarter figures showed jack-up drilling rigs as the
main type of offshore asset contracted at the country’s yards, representing 29% of China’s off-
shore orders. They were followed by drillships and semi-submersible drilling rigs with 14% each.
An impressive 45% of Cexim’s shipping portfolio, which spans $14.5bn in commitments and
almost 400 vessels, has financed companies in Europe. Asia was the second-largest borrower,
with 32%. However, ship exports account for only about 10% of its total disbursements. Mr Chen
said Cexim is prepared to finance purchases of secondhand ships as well as newbuildings,
but the vessel would have to be Chinese-built. Although there can be some flexibility for lend-
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
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ing on secondhand acquisitions, this is mainly within the scope of a wider relationship with a
shipowner that includes building vessels in China. For approved projects, Cexim can provide fi-
nancing for up to 80% of the investment amount. China Development Bank, which has a ship-
ping loan book of more than $12bn, also pays “high attention” to the Greek market, said An Gu,
deputy general manager of CDB’s Ship Finance Centre. In 2010, CDB was exclusively mandated
to administer a new $5bn China-Greece ship-development fund. Lending under the fund has
been comparatively modest, however, with commitments so far “over $1bn”, financing more than
30 ships of various types. Faced with several years of shipping-market adjustment, CDB has
strengthened its risk management and diversified the ways it supports shipowners. Mr Gu’s out-
look for the industry is that “probably, the downside potential is limited but the time of revival
might still be uncertain”.
Lloyd´s List - 10 June 2014
3. Greece - China Multi-Billion Shipbuilding Trade Deals
Greece and China have signed multiple trade and investment agreements in areas including
shipping and energy worth approximately $4.6 billion, according to the Greek Development Min-
istry. The signings took place within the framework of Chinese Prime Minister Li Keqiang’s official
three-day visit to Greece. The deals, among others, include multi-billion-dollar Chinese bank
loans to build at least ten Greek-owned ships in Chinese shipyards.During a joint press con-
ference at the Maximos Mansion in Athens, Greek Prime Minister Antonis Samaras said: “We seek
to bring China closer to Europe. Greece can become China’s gateway in Europe, and the start of
a European trade corridor.”These investments might herald a new era for the Greek slumping
economy, and blaze the path for future investors. China is said to have already set sights on a
few potential investment opportunities, namely a 67% stake in the Piraeus Port Authority, which
is to be privatized as part of Greek government’s shipping revitalization plan. A number of other
Greek ports, including the second largest Port of Thessaloniki, await privatization under a state
asset programme mandated under the country’s EU-IMF debt rescue.
World Maritime News Staff, June 20, 2014
4. Greek ship lending slumps as caution rules European banks
Petrofin says private equity has filled the gap but banks should bounce back soon. One of the
largest annual drops in the amount of bank financing for the Greek-owned fleet has been re-
ported in a new survey that identifies lingering doubts in the European banking industry and an
influx of private equity financing among factors contributing to the reduction in conventional
loan finance. Petrofin Bank Research’s snapshot of the industry showed that Greek ship finance
fell by 6.5% last year. Although the fall was not as dramatic as in 2009, when the aggregate
portfolio plummeted by 8.5%, total lending to the industry at end-2013 stood at $61.5bn, back
to estimated levels of mid-2007. According to Petrofin managing director Ted Petropoulos, more
time was needed before a revival of confidence in the industry could translate to a wider pick-up
in lending activity. Many shipping banks also needed time to reduce their shipping exposure to a
more desirable level or had implemented criteria for lending that was “too strict”, ruling out most
potential loan transactions. However, said Mr Petropoulos, more significant reasons for banks’
lack of ship lending appetite stemmed from weakness in the liquidity and capital ratios of Euro-
pean banks in the light of Basel III and the new European Central Bank regulatory overview.
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
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“Banks simply lacked the resources and the risk appetite to step on the gas pedal,” he said. “Eu-
ropean banks especially found themselves bracing for the ECB loan review and proving their fi-
nancial robustness. In a world of doubt, to banks profitability came second to financial strength.”
According to Petrofin’s statistics, European banks provided 72% of global ship finance in De-
cember 2013, and 90% of finance for Greek owners.
European banks’ difficulties had a “profound” effect on financing of Greek companies and last
year’s reduction in portfolios came at the same time as a surge in the size of the Greek-owned
fleet to a record capacity of 291m dwt. However, owners have been able to turn increasingly
to US private equity funding. “As the finance gap widened, private equity funds were for many
Greek owners often the only way to take advantage of what promised to be a healthy shipping
recovery,” said Mr Petropoulos. Funds were “not only active but often scoured Greece for oppor-
tunities to co-invest and lend to Greek owners”. A trend for the share of mortgage financing for
the world fleet to fall was “even more pronounced in Greece”, Mr Petropoulos said. “We believe
that there are over 40 joint ventures in place today,” he said. Most individual banks saw some
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
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reduction in Greek shipping exposure during last year although there were quite a few notable
exceptions. Amid the ranks of top 10 lenders to Greek owners, international banks that increased
their activity last year included Credit Suisse, which is estimated to have boosted its portfolio by
more than 9%. With a Greek portfolio of about $5.7bn, including $900m committed but undrawn
for newbuildings, the Swiss lender now stands clear second in terms of exposure. Although it fell
one place in the rankings to fifth, DVB increased its lending to the Greek market by 25%, to
$3.7bn. HSH Nordbank, now ranked ninth, also increased its loan book, while the survey also
confirmed the market reputation of banks such as ABN Amro and ING as among the more active
recent lenders. The overall leader in Greek ship finance remains Royal Bank of Scotland, with
a portfolio at year’s end of $8.8bn, or a market share of 14.4%. However, it was one of the fast-
est-shrinking portfolios, marking a 16.5% decrease from 12 months earlier. Its total includes
about $213m in committed but undrawn loans, but another 10 banks — led by Credit Suisse —
have committed more in future newbuilding support. Other sharp reductions were at Com-
merzbank, which last December was still the third-largest bank in Greek shipping, but it is exiting
ship finance, and at Calyon, which is estimated to have shed about 21% of its exposure. The
leading Greek domestic banks also emerged as growing in the field, with fourth-placed Piraeus
Bank, sixth-placed National Bank of Greece and eighth-placed Alpha Bank all registering hefty
portfolio gains, but these were the result of absorbing other banks’ portfolios, in most cases due
to taking over smaller Greek banks. The number of Greek banks left in ship finance has fallen to
five, from 15 a decade ago, while the overall number of banks involved in Greek shipping last
year fell from 51 to 46. A number of Far Eastern banks, including Cexim, China Development
Bank and Kexim, also increased their financing of Greek owners last year. Petrofin said that
provided the shipping recovery continued, which it said was “a big ‘if’”, it expected private equity
interest in the industry to wane over the next two years. But this, and a recent slowdown in Chi-
nese ship lending to western owners, would be offset by the increasing confidence and financial
ability of European and North American banks. Western banks would again be “attracted by the
high loan yields of Greek shipping based on modern eco design vessels,” said Mr Petropoulos.
Lloyd´s List – 23 April, 2014
5. UK - Chinese Firms Close Multi-Billion Trade Deals
The UK and Chinese firms have signed £14 billion (circa USD 23.7 billion) of trade and investment
deals. The annual UK-China summit takes place just 6 months after the UK Prime Minister’s visit
to China and with bilateral trade at record levels – up by 8% overall in 2013. UK exports to China
have more than doubled since 2009, and are growing faster than the country’s French and Ger-
man competitors. Last year UK exports to China averaged more than £1 billion each month. The
UK benefited from Chinese investments worth over £8 billion in 2013/14 alone, creating or safe-
guarding over 6,000 jobs in the UK.
World Maritime News, June 17, 2014
6. China Eximbank lends $1.2 billion to German firms for Chinese ships
Export-Import Bank of China (EximBank) will lend $1.2 billion to German shipping firms Peter
Dohle Shiffahrts-KG and Bernhard Schulte for the purchase of Chinese ships, the official Xinhua
news agency reported. The deal will increase chances that German shipping firms will purchase
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
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more China-made ships, Xinhua reported the EximBank as saying. A prolonged slump in shipping
and pressure to shrink bloated loan books have forced many European banks to abandon or
scale down lending to the sector. The EximBank loan deal was signed during Chinese President
Xi Jinping's state visit to Germany.
Reuters - 31 March, 2014
7. Korean Kexim enhanced relationships with European players since 2013
The Export-Import Bank of Korea signed in December 2013 memorandums of understanding
with European firms and lenders to enhance financial co-operation, as it seeks western partners
and clients to support South Korea’s export-oriented economy. The deals were signed during the
state visit to France and the UK this week by South Korean president Park Geun-Hye. According
to Kexim, the counterparties include European Bank for Reconstruction and Development, UK
Export Finance, Barclays, Société Générale, Proparco and Seadrill. Kexim pledged to provide $1bn
financing to John Fredriksen’s oil-drilling business Seadrill, which has ordered 17 offshore units
at South Korean yards for $8.9bn. It will also jointly provide $1bn with EBRD for developing logis-
tics and infrastructure projects across Europe and Asia, such as the Eurasia Tunnel beneath Tur-
key’s Bosphorus Strait. The agreement states that the two lenders will “promote projects that
support sustainable economic and social development from central Europe to central Asia and
southern and eastern Mediterranean”. Meanwhile, Kexim and UK Export Finance have agreed to
provide $1bn in financing to firms from the two countries that are developing export projects.
UK Export Finance and Korea Trade Insurance signed a separate MoU that has a similar purpose
but with no headline figure.
Lloyd´s List – December 2013
8. European banks lend $830m on Star Cruises vessel. Rare case of Asian owner look-
ing west for finance
KFW Ipex-Bank, Crédit Agricole and the Singapore branch of DNB Bank are to provide just under
€600m ($829.4m) of the €700m financing required for a new cruiseship ordered by Star Cruises
from the Meyer Werft shipyard in Papenburg last October. The move is a rare example of Euro-
pean banks lending to an Asian owner as most purely German commercial banks are pulling
back from shipping exposure as their counterparts in the Far East are opening their coffers to
keep domestic shipyards in business. However, Europe retains a lead in the cruiseship market
and KfW’s remit expressly includes lending to assist the German and wider European economies.
The loan will be paid in US dollars and has a term of 12 years from delivery. The deal was struc-
tured by KfW and is backed by export credit insurance issued by the German government. “With
this high-volume financing, we are underlining both our expertise in structuring within the
cruiseship industry and our role as one of the world’s leading players in ship financing,” said
Christian Murach, the responsible management board member at KfW Ipex-Bank. “We are also
helping to support German exporters [and] especially north Germany as a shipbuilding location.”
The new vessel has a gross tonnage of about 150,000 gt, more than 1,600 passenger cabins on
18 decks and a length of approximately 330 m. This makes it the largest ship in Star Cruises’ fleet
and one of the biggest cruiseships based out of Asia.
Lloyds List – 15 April 2014
SEA EUROPE SHIPBUILDING MARKET MONITORING REPORT 35 OF JUNE-2014
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9. Norway says yes to new shipping bank
M&M prepares a capital issue having secured its private trading licence.
Maritime and Merchant, the new Norwegian financial institution that launched last year, has se-
cured a licence to trade as a private bank from the country’s financial supervisory authority.
M&M is preparing a capital issue with a target of $300m-$350m in equity to build up its opera-
tions, create its banking system and to form its organisation. Pareto Securities and DNB Markets
will be joint lead managers and bookrunners, and the bank intends to start operations in April.
M&M managing director Halvor Sveen said stricter requirements on lenders at a time of growing
opportunity as the markets recover made for good timing for the new bank to launch. M&M has
described itself as a small operation that will conduct business on a personal level and keep
overheads as low as possible. With funding from shipowners Henning Oldendorff and Arne
Blystad, M&M was unveiled last October with the brief to provide standard financing to shipping
and offshore companies as many of the industry’s traditional lenders move away from what they
see as a high risk industry. Apart from Mr Oldendorff and Mr Blystad, each with 30% stakes, the
backers and shareholders include Pål Utvik and David Wu, through Shanghai-based Landmark
Holdings’ 18.75% stake. Nergaard Investment Partners, based in Singapore and controlled by
Alex and Birger Nergaard, will have an 11.25% share.
Lloyd´s List - 03 February 2014
10. China´s 3 year plan for upgrading and restructuring Shipbuilding Industry:
China's State Council has issued a three-year plan to upgrade and restructure its shipbuilding
industry. China has become one of the most influential shipbuilding countries in the world. But
China's shipbuilding industry is now facing unprecedented challenges, due to the plunge in de-
mand worldwide. The plan states that many important measures need to be taken as part of the
industry's three years development. In the coming three years, the restructuring and upgrading
of China's shipbuilding industry will focus on accelerating innovation, strictly controlling new
capacity, promoting high-end products and stabilizing the industry's international market
share with greater funding support. "The three-year plan has three measures. One is to expand
domestic demand and promote export. To expand domestic demand, the plan is to encourage
the scrapping of older ships and more military-civilian cooperation in vessel design and
development. To maintain a more stabilized international environment, the plan encourages
financial institutions to increase credit support for foreign buyers of vessels and equip-
ment, and study securitization of shipbuilders' loans. Besides restricting new shipbuilding ca-
pacity, the government is encouraging mergers and acquisitions and the pooling of resources
in the industry. The plan also encourages the development of offshore engineering equipment
such as drilling platforms and large LNG ships. "The new three-year plan is focusing on long term
sustainable development. It aims at changing from big to strong. It no longer eye at maintain or
expand the development scale of the industry." Cao Yousheng said. The statement says that local
authorities and agencies should formulate supporting policies and ensure the timely completion