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China drives new-build orders(Gulf News Via Thomson Dialog NewsEdge)China overtook Italy and France last year to become the world's fifth largest economy. Ahead in the race and firmly in its sights lie the UK, Germany, Japan and the US. It is fair to say that the current overtaking manoeuvre involves a re-jigging of the figures. A census conducted by 10 million industry inspectors touring the country is expected to show that the Chinese economy is nearly 17 per cent understated. This will put China very much on the shoulder of Germany and ahead of the UK in the GDP stakes. So China, as for the last few years, is the catalyst that provides the rationale for the extended lists of newbuilding orders. LNG carriers comprise 90 per cent of the existing fleet, container ships 50 per cent, LPG 34 per cent while bulk carriers languish down at 19 per cent of existing tonnage, a figure normally considered high. But ship oversupply is generally ringing fewer alarm bells than expected because the problem of port congestion will absorb some of the surplus capacity, combined with longer-haul cargoes which alter the ton/mile equation. But the whole shipping edifice seems to be balanced in unstable equilibrium. For example it is difficult to see how Western Europe's sub 2 per cent GDP growth this year is sustaining container traffic increases of over 10 per cent. The year of the giant container ship is upon us. The largest acknowledged boxships are the MSC vessels such as the 2005-built MSC Pamela of about 9,500 TEU with a speed of 25 knots. Maersk Line is reported to have ordered a series of 15,500 TEU giants from its own Odense shipyard. Enlargement of the Bremerhaven turning basin, which is Maersk's hub port in Germany, to accept giant container ships has already begun. Bulk shipping In the bulk shipping department, the latest global steel production figures provide an interesting pointer to the future. These show an overall growth in 2005 of 6.2 per cent. This does not at first sight appear to be bad news. That is until it is broken down regionally. The EU-25 is down nearly 4 per cent. North America as a whole is down 5 per cent with US steel-making shrinking by more than 6 per cent. In comparison, China's steel production is up 26 per cent and India by nearly 15 per cent. Prices have fallen sharply within China from a peak in March. Domestic prices are more than $200 a tonne lower than in Europe or the US. For the first nine months of 2005, its exports have increased sharply to 15.8 million tonnes, which is some 83 per cent up, year on year, causing some concerns abroad. It is its stated intention that China will remain a net importer of steel in the short term. It is the longer term which will cause difficulties, for how long is the short-term? The country is on course to produce 340 million tonnes of steel in 2005 compared with 273 million tonnes in 2004. Just this increase is almost as much as the US produces annually. So the competition is well underway. So far there is no competition for supplies of iron ore or coking coal for the manufacture of steel; suppliers have made tremendous strides in expanding their export facilities. In the last ten years Australia for example, has increased ore exports from 127 million to 246 million tonnes per annum. But soon there will be worldwide competition for oil. After product shortages in the summer, the Chinese government instructed domestic oil companies to increase stocks to 15 days demand. They had allowed stocks to get as low as three days in some provinces. It also suspended the 11 per cent export rebate, such suspension designed to stop product exports. But even though the country was drawing down on stocks, the tanker market and the crude and product movements to China continued to expand. Oil cargoes Opec foresees oil demand increasing from an average of 83.3 million barrels per day in 2005 to 84.8 million bpd in 2006. A quarter of this increase is attributed to China. But China is already taking oil cargoes from the West's traditional suppliers rather than the closest provider. In week 48 for example, one VLCC was fixed from the Baltic, five from the Caribbean and one from Bahamas, all for discharge either in China or into Singapore for refining or for transshipment into smaller vessels or both. These longer voyages point to an increase in ton/miles and tanker volumes spread a little thinner. So despite that fairly long order book for new oil tankers, currently about 25 per cent, one may well cancel out the other. In the clean product market, damage from hurricanes Katrina and Rita served to underline the lack of refinery capacity in the US. The European refiners stepped into the supply breach and kept motor spirit, jet fuel, gasoil and naphtha flowing across the Atlantic. But there is a lack of will in the US to expand existing refineries, or to build new ones. The Bush administration has suggested government land in remote areas be released for such development, but so far there are no reports of US refiners taking up the offer. Refinery expansion east of Suez is now serving two purposes. It satisfies China's growing need for refined products and provides the US with a ready supply. It is also advantageous to the shipping industry. Increasingly, large numbers of Aframax tankers are being deployed in the clean product's trade, thus reinforcing the trend for longer-haul hydrocarbon transport. So what does this year offer in shipping terms? Oil tankers should continue to do well. Dry bulk shipping will struggle as new vessels continue to roll down the slipways. But there is surely a big question mark over the containership market. The writer is a shipbroker and marine consultant with more than 40 years of experience in the tanker and dry cargo markets. The year of the giant container ship is upon us. The largest acknowledged boxships are the MSC vessels such as the 2005-built MSC Pamela of about 9,500 TEU with a speed of 25 knots. Maersk Line is reported to have ordered a series of 15,500 TEU giants from its own Odense shipyard. |