Zhitong Finance and Economics APP learned that Huayuan Securities released research reports stating that recently, the International Maritime Organization (IMO) Marine Environment Protection Committee 82nd session (MEPC82) was held at the IMO headquarters in London. Among them, the meeting proposed that the CII regulations would need to be further tightened after 2026 to meet IMO's target of reducing carbon intensity in shipping by at least 40% from 2008 levels by 2030. After a long period of downturn in shipbuilding demand since 2008, shipbuilding production capacity has continued to shrink. The rapid recovery of new orders has encountered a shrinking shipyard capacity mismatch, putting major shipyards worldwide in a state of production capacity shortage where shipbuilding capacity cannot meet demand. The continuous tightening of green regulations may accelerate the elimination of old ships and the renewal of green ships.

The main points from Huayuan Securities are as follows:

MEPC82 established the regulatory framework for mid-term decarbonization measures in shipping, focusing on technology measures centered around GFI, with economic measures yet to be determined.

MEPC82 meeting focused on ship emissions control, ballast water management, black carbon emission reduction, greenhouse gas reduction, and marine plastic waste prevention, further developing candidate mid-term measures and developing a life cycle greenhouse gas assessment framework. It established technology measures centered around GFI and streamlined the documentation, but the specific regulations have not been finalized. There are still disagreements on aspects such as whether GFI indicators should be based on WtW or TtW, how to set reduction rates, the reference year for GFI baseline values, and whether GFI implementation should be annual or phased.

In discussions on economic elements, there is a certain consensus among parties regarding the overall principles of fund management, income distribution for incentivizing zero/near-zero fuels or technologies (ZNZs), but further discussions are needed on the goals to be achieved by economic elements, the selection of constituent elements, as well as fund income collection/distribution. The meeting also improved the International Convention for the Prevention of Pollution from Ships, adding a 5th chapter on the framework of the Maritime Organization's Net Zero Regulation, primarily setting the framework. The draft includes alternative clauses for mid-term measures, which are yet to be finalized with specific details pending.

Regarding short-term decarbonization regulations, the meeting proposed that the CII regulations would need to be further tightened after 2026 to meet IMO's target of reducing carbon intensity in shipping by at least 40% from 2008 levels by 2030 (the current regulations stipulate a CII emission reduction factor until 2026 at 11%, increasing by 2% annually, which still falls significantly short of the target and may be tightened to a 3% reduction per year).

The continuous promotion of mid-term measures and regulations for decarbonization of shipping industry, focusing on observing MEPC83 in April next year.

MEPC82 meeting did not formally determine mid-term measures and regulations for decarbonization of shipping industry, but it conveyed a signal of tightening future shipping environmental policies, enhancing the industry's expectation for the future adoption of stricter regulations. The IMO mid-term measures for greenhouse gas emissions reduction, based on emission reduction targets and the 'pricing mechanism,' to be launched at MEPC83 meeting in April next year, are expected to become the most important regulatory framework for the international shipping industry in the coming decades. It is expected to have a significant impact on shipping costs, organizational relationships, and business models, making it one of the most important regulations in the international shipping industry in the coming decades. The meeting drafted the working draft of Amendment 6 to the International Convention for the Prevention of Pollution from Ships, which will approve the regulatory text at MEPC83 in April 2025. This meeting is more symbolic than substantial in terms of achievements, mainly laying the groundwork for the next meeting. The final outcome in the future will still need to pay special attention to the MEPC83 meeting.

The production capacity of new fuel shipbuilding is limited, and the ship's green renewal cycle is stable and promising.

The order frenzy during the pandemic in 2021 severely overdrew the industry's supply capacity, keeping shipyard production capacity in a tight state. After the long-term downturn in shipbuilding market since 2008, shipbuilding manufacturing capacity has continued to shrink. The rapid recovery of new orders encounters continuously shrinking shipyard capacity, resulting in a mismatch where major shipyards around the world are in a tight production capacity state with demand outstripping supply. The continuous tightening of green regulations may accelerate the phase-out of old ships and the renewal of green ships.

From the current orders in hand, the orders for tankers, bulk carriers, and other ship types only meet the basic fleet renewal, with a significant gap to meet the needs of green renewal. The construction of new fuel ships has a high threshold, limited production capacity, and increases the threshold for new shipyards and bankrupt shipyards to revive, making it difficult for future shipbuilding capacity to see significant growth. Under these circumstances, the core drive of this shipbuilding cycle is the fleet's green renewal driven by gradually tightened green regulations and the continuous tight supply of production capacity.

Regarding the symbol: it is suggested to pay attention to china CSSC, the leading company in the Chinese shipbuilding industry, and china shipbuilding industry group power, the leader in marine engine industry.