Hot newbuilding market could cool amid price increases

 

 

Rising prices for new container ships could see a cooling of demand in the future, but right now the increases are being driven by a dearth of available slots, increased raw materials costs and demand for eco-friendly tonnage, said analysts.

 

Almost all of the major shipbuilders, across all three shipbuilding regions, Japan, China and South Korea, have seen a surge in the share price as orderbooks are full into 2027 with bulk carriers and car carriers competing with container shipping for new environmentally friendly vessels.

 

Drewry Shipping Consultants’ Simon Heaney summed up the situation, “Prices are on the rise because there are much more sophisticated designs on offer, including eco-ships, along with an increase in the price of steel and the massive demand means that slots are hard to find.”

 

Clarksons Newbuilding Price Index has seen a 9% increase over the last year alone, rising from 162 a year ago to 176 in October this year, but the major leap came in from September 2021 to 2022 which saw a 17-point increase in the index from 145, an 11.7% rise.

 

The China Newbuilding Index also increased, but the surge was more limited from 1020 a year ago to 1058, but this was a recovery from a dip at the end of 2022 and into 2023.

 

Darron Wadey, shipping analyst at Dynamar, added, “On average, share prices of major shipyard groups have risen by approaching one third from mid-October 2022, with only one, Hyundai Mipo, going down. These are underpinned by the shipbuilding indices and indicative newbuild price indications.”

 

It is the South Korean yards that have seen the biggest turnaround with demand for most vessel types, including container ships, driving a recovery.

 

In addition, Wadey points out that the South Korean yard reorganisation had also played a role in the yards’ recovery from the pandemic slump.

 

“The reason for the return to profitability [for South Korean yards] is that it recently underwent a period of reorganisation, some of which was unsettled by the European Union blocking the planned merger of Daewoo Shipbuilding & Marine Engineering and Korea Shipbuilding & Offshore Engineering (previously Hyundai HI) in 2022.

 

“DSME later found a home with the more defence orientated Hanwha. Alongside, Hyundai Heavy Industries was separated pre-COVID with KSOE emerging as the shipbuilding element.”

 

It is also mentioned by both Drewry and Dynamar that new regulations are playing a significant role in driving up demand for new ships with more complex vessels.

 

“The green transition has seen container lines create their own targets ahead of the IMO standards, and that move to clean the fleet meant over 95% of new orders were for dual fuel or alternative fuel contracts,” said Heaney.

 

“Regulations certainly play a role, and will do so increasingly as time goes on,” agreed Wadey.

 

He added, “The IMO’s EEDI and EEXI/CII regulations have come into play over the last two years, with the much talked about European Union emissions trading scheme (EU ETS) due to start in 2024.”

 

Carriers have already given provisional advice as to the cost implications of the EU ETS.

 

“The impact of these regulations will be to encourage if not accelerate the drive to vessels that reduce emissions as much as possible, with the result owners may well start looking to replace older ships sooner than as if these regulations were not in place. Effectively, this will bring the replacement orderbook forward,” concluded Dynamar.

 

Drewry added that the scrapping of older and less efficient tonnage also needs to increase to see a more rapid transition to green fuels.

 

Even so, it seems that the ordering spree is continuing with Heaney pointing to the eight-vessel order for 9,200 TEU methanol DF ships by CMA CGM for 2026-27 delivery. And in August MSC contracted for 10 LNG powered 10,300 TEU ships with similar delivery dates.

 

In addition, Heaney cited unconfirmed reports that Maersk is in discussions for 15 units of 9,000 TEU and ONE is discussing an order of 10 units of 13,000 TEU, both orders are said to be for DF ships.

 

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