Mumbai: Shares of Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering in Korea were battered on Tuesday on concerns over a possible impact of the possible global economy slowdown on pricing for new ships.
 
The Baltic Dry Index, a benchmark for the price of shipping bulk commodities, has plunged over 25% to 7000 levels from its November highs of 11,039.

Does it mean Indian shipbuilders, who are in capacity expansion mode, should be worried?
“Not at all. Korea and Japan are costly locations for shipbuilding and their company stock valuations were unreasonable and now they are correcting. This does not mean that there will be a slowdown of any kind,” said Dhanajay Datar, chief financial officer, ABG Shipyard, the country’s largest private shipyard.

M Jitendran, chairman & MD, Cochin Shipyard Ltd, said: “Shipbuilding isn’t a short-cycle industry and since all shipyards are booked till 2011, I don’t see a recession.”

On account of the falling Baltic Index, analysts feel that this is correction time and will not lead to a recession. “The ship charter rates are now correcting as they went unusually high and were sustainable, but are still very healthy,” said Kapil Yadav, analyst with Dolat Capital.

Baltic Dry Index fell to 7,000 level compared with its all-time high of 11,039 in November last year.

While talking of the concerns of a possible slowdown in ship orders or rates, industry analysts feel that competitive markets like India and China would not feel the heat as much as their counterparts in larger shipbuilding countries like Korea or Japan.

“Shipping companies will become more price conscious and shift to less costly locations like India for their fleet demands,” said Datar.

Indian shipbuilders are optimistic about the orders, following a report that the ship orders may slow this year from the record sales in 2007. The Indian shipbuilding capacities are full till 2011.

Besides, Yadav said Korea and Japan, which take as much as 70% of the global shipbuilding, are running full capacities. In this situation, orders are flowing into markets like India and China that have cheap labour and manufacturing costs.

Moreover, Indian shipyards do not build very large ships like the Korean yards, which build Capesize and Very Large Crude Carriers of about 3,50,000 tonnes capacity.

“Since we build different category of ships compared with Korea, a slowdown in the larger capacity vessels there would not have an effect in the India market,” said P C Kapoor, MD, Bharati Shipyard.

Also, most of the larger Indian shipyards supplying in the international market have shifted into offshore vessels and are catering to niche markets, Jitendran said.

Kapoor said even if there was a recession, it would only affect the volume of cargo. However, a lot of current demand for ships is because of regulatory issues like scrapping of single hull vessels by 2010, volatile oil prices, and the older fleet getting retired.

Jitnedran added: “The bottleneck in terms of orders is mainly because material availability is ruling the pace of production and all ship components are booked till 2011.”

Source : Dna