Wang Jin

Recently, the 81st meeting of Chinese ship repair companies SPCC was held via video conference. In the ongoing COVID-19 epidemic and the conflict between Russia and Ukraine, although the number of SPCC members has decreased by 6% year on year, the output value of ship repair increased by 4% YOY. Among the ship repair enterprises, 85% of the enterprises made profits in the first half of the year, among which 20% made profits of more than 50 million yuan, laying a solid foundation for the realization of the annual performance target.

Ship repair performance on general increase

Since March this year, the epidemic situation in Shanghai has been very severe, which has seriously affected the operation and production of ship repair enterprises. From January to June, the output value of Shanghai Huarun Dadong Dockyard Co., Ltd. (HRDD) increased by 4.86% year on year, and the number of completed ships decreased by 8.62% YOY. In the more than two months of Shanghai's lockdown, the company docked 37 ships and repaired and discharged 42 ships, in a bid to minimize the impact of the epidemic.

The ship repair industry prediction last year that this year is a good year for the ship repair market has been verified. Data show that a number of enterprises have realized half of the task in half of the time. The H1 output value of Guangzhou Wenchong Ship Repair under CSSC GSI increased by 23.7% YOY, and the number of handheld orders for desulfurization and retrofitting was large. As of early July, the docking period of China Merchants Industry Shekou Youlian Shipyard had scheduled until November. The ship repair business of some enterprises accounted for 55.8% of the domestic market, indicating that the timely adjustment of business strategies during the epidemic has produced significant effects.

So far, the environment-friendly ultra-high pressure water jet rust removal technology has been widely used in the ship repair industry. Statistics show the area of UHP water jet rust removal of SPCC members has increased from 2.01 million m2 in H1 2018 to 8.59 million m2 in H1 2022. It is a threefold-plus increase. This shows to some extent that Chinese ship repair enterprises are realizing sustainable development at an increasingly fast pace.

Epidemic curbing policy adjustment boon for the ship repair market

In H2, the ship repair market demand is likely to grow to some extent. Representatives of the participating enterprises believed that from the perspective of the impact of the epidemic, with the revision of the national epidemic prevention and control plan, the quarantine requirements for ships and personnel will be gradually optimized, which is good for the subsequent repair of ships in the factory, and the market situation of ship repair will continue to improve for a period of time.

From the perspective of market demand, the international price difference of high-sulfur oil and lowsulfur oil is further increased, the market demand for desulfurizing tower retrofitting project has rebounded, some customers began to consider installing desulfurizer; with the layout and development of new energy, many shipowners have considered the scheme, and it is projected that there will be some business opportunities in wind energy power, hydrogen fuel, ammonia fuel and other new energy sectors.

However, some ship repair enterprises are fairly cautious about the follow-up market. Although the new specification has brought about attempts in changing traditional fuel to double fuel, with high retrofitting cost, its effect needs to be improved. It remains to be seen whether the transformation climax can be promoted, and the amount of ship repair business may be getting small.

A ship repair company in Shanghai said that due to the impact of this round of Shanghai epidemic, the subsequent orders are significantly less than expected, the H2 total business is insufficient, and there are only a few ships involving large quantities, and the workload of some types of work is insufficient. Therefore, in terms of conventional repair, they are cautious about the H2 market. In the retrofitting project, the rotary sail installation and air lubrication system installation may become a new growth point, and the desulfurizing retrofitting volume may pick up, but it depends on the subsequent relevant policy requirements, shipping market trend and oil price spread among other factors.

Even if the ship repair market sees a somewhat growth in H2, the fierce competition in the domestic ship repair industry still exists. Representatives of participating enterprises analyzed that China's ship repair prices continued to fall, and the phenomenon of grabbing orders in the industry occurred from time to time. The overall environment faced by ship repair enterprises is overcapacity and fierce internal competition, which erodes in corporate profits.

Multiple challenges dangling H2

At present, local epidemic prevention and control regulations on the repair of international ships in China are not significantly relaxed, and the SPCC member units need to continue to maintain close communication with overseas shipowner companies, so that they can cooperate with the ship repair enterprises to meet the epidemic curbing requirements. The industry organization suggests that all efforts should be made to improve the epidemic curbing policies suitable for the development of ship enterprises. Against the background of the normalization of epidemic curbing, joint efforts of both inside and outside the industry can promote the implementation of epidemic curbing measures that meet the requirements of the precise prevention and control and the characteristics of the ship repair industry, so as to effectively achieve both epidemic curbing and normal production.

Volatile organic compounds (VOCs) treatment in the ship repair industry is imminent. The industry organization analyzed that SPCC members must establish their own group standards (such as ESG standards), and develop them from group standards to industry standards, and then optimize them to national standards, if they are to solve the problem of fugitive emissions of VOCs. In addition, the wider application of UHP water rust removal technology, the higher acceptability of ship owners, and the better the cost performance of the operation mode should be.

The analysis data of international analysis agencies show China's number of repair ships accounts for more than 50% of the world, while the share of the global repair revenue is seriously inverted. According to the representatives of the participating enterprises, the overall price level of Southeast Asian shipyards is about 1.8 times that of domestic ship repair enterprises, and steel structure renewing is 2.7 times or even 3 times that of domestic shipyards, but the repair period is 30%-40% more than domestic ship repair enterprises. Domestic ship repair enterprises are still in the predicament of low price competition.

According to the industry organization analysis, the trend of domestic orders shunt to overseas other repair enterprise is more and more obvious, but the confidence of China's repair enterprises comes from the world's leading repair quality and repair efficiency, repair enterprises should broaden perception in green technology repair, stabilizing price, improving efficiency, discount to zero and capacity control, aim high, and strive to achieve improved quality and efficiency.