Shipbuilding's Rising Tide: Who Are Poised for the New Cycle?
Over the past year, global shipbuilding enterprises have shone brightly, with companies such as $YZJ Shipbldg SGD(BS6.SG$ experiencing a surge of nearly 50%.
What are the potential catalysts for future demand in shipbuilding industry?
Slumps in shipping efficiency could drive shipbuilding demand
Fluctuations in transport efficiency, especially during phases of supply-demand equilibrium, directly affect freight rates and stimulate the demand for ships. Historical examination reveals that geopolitical conflicts and public health crises tend to drag down shipping efficiency, leading to imbalances in effective shipping capacity that could translate into increased shipbuilding orders. Shipowners, aiming to maintain their transport capabilities, are likely to express a stronger intent to purchase new vessels.
For example, during the two historical closures of the Suez Canal, ships had to detour around the Cape of Good Hope, resulting in increased shipping distances and subsequent spikes in global ship deliveries about two years later.
Since the fourth quarter of 2023, incidents in the Red Sea have caused disruptions to Suez Canal transits, and with escalating tensions in the Middle East this year, a boost to ship demand is anticipated.
Ship replacement cycle on the horizon
Demand for replacing older ships spurs order release: The average lifespan of a vessel is generally 20-25 years. Ships around the 20-year mark face issues such as high fuel consumption, severe pollution, costly maintenance, and poor economy, which necessitates their replacement. The last shipping construction boom occurred around 2000-2011, and a new cycle of renewal is emerging.
According to UNCTAD data, as of 2023, about 12.5% of the global fleet, measured in deadweight tonnage, averages over 20 years of age, with oil tankers being particularly aged. Clarkson's data reveals that since 2013, the average age of the global fleet for vessels over 100 gross tons has increased, reaching an average age of 22 years by 2023.
Environmental policies for shipping gradually take effect, promoting fleet renewal: If international shipping were a country, its carbon dioxide emissions would rank sixth in the world. Last summer, diplomats at the UN's International Maritime Organization set a target for shipping to achieve net zero emissions "by or around" 2050. The EU has included the shipping industry in its key climate tool - the EU Emissions Trading System (EU-ETS), which is implemented on January 1, 2024, while the EU Maritime Fuel Regulation (Fuel EU Maritime) is expected to come into force on January 1, 2025.
Under the pressure of environmental policies, switching fuels becomes imperative. There are two fundamental options for changing ship fuel: retrofitting the entire fuel power system or building new ships. As a result, rigid demand for ship replacement will further support future ship manufacturing demand.
Global economic recovery
In the shipbuilding industry, the economic environment significantly influences overall sector growth, driven by downstream shipping trade. When the macroeconomic climate is favorable, the demand for material transportation increases, prompting trade giants to expand their shipping needs through outsourcing, thereby propelling the development of the shipbuilding industry.
The global economy has shown resilience this year and is on track for a soft landing. The International Monetary Fund (IMF) has released its latest World Economic Outlook report on April 16, projecting a 3.2% global economic growth rate for 2024. This forecast is a 0.1 percentage point increase from January's prediction, marking the second upward revision by the IMF for the 2024 global growth rate this year. Furthermore, the IMF has revised its growth projections for the US economy, with an increase of 0.6 and 0.2 percentage points for 2024 and 2025, respectively, to 2.7% and 1.9%.
What companies are worth watching？
$YZJ Shipbldg SGD(BS6.SG$ is one of the leading shipbuilding companies in China, with a strong focus on the construction of commercial vessels, including bulk carriers, container ships, and LNG carriers. The company is renowned for its innovation and quality, and has built a strong presence in the global shipbuilding industry, with operations in China, Singapore, and Europe.
$Seatrium(S51.SG$. formerly known as Sembcorp Marine, was formed in 2023, from the merger of Sembcorp Marine and $Keppel(BN4.SG$ Offshore & Marine, two marine & offshore engineering titans now sailing as one. The company provides rigs and floaters, repairs and upgrades, offshore platforms, and specialized shipbuilding.
Source: UNCTAD, Clarksons Research, IMO, FT
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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High Profit Low Loss : Good insights on companies in play. Thank you for these invaluable knowledge.
102660768 : What damn analysis is this?
Keppel had already sold KOM last year to Sembawang and merge into now call SEATRIUM. Here still talk about Keppel on shipbuidling?
BS report
Moomoo News SG OP 102660768 : We sincerely apologize for the oversight in our article. Your careful reading and subsequent feedback have helped us identify and rectify the mistake. We are grateful for your contribution and thank you for helping us ensure the accuracy of our content.