Corus left shoulder or the foothills?

Record shipyard order books fuels steel plate demand: sources
Source: PMA

Shipbuilders, like their aircraft manufacturing counterparts, are enjoying near record order books, generating strong demand for mild steel plate.

At the beginning of December, the worldwide order book for new ships of all types deadweight mt (dwmt) stood at 4,213 ships, aggregating 224.6-mil dwmt, which represents the equivalent of 25% of the existing world fleet in dwmt terms, according to Clarkson Research Services.

At the beginning of October, the world order book stood at 4,273 ships, aggregating 231.2-mil dwmt, representing 26.1% of the world fleet. The decline is due to the large number of ships that were delivered during October and November, which outpaced the volume of new orders placed at shipyards. At the beginning of this year, the world order book stood at 3,673 ships, aggregating 218-mil dwmt and a year earlier, it was approximately 2,700 ships (170-mil dwmt).

Surging freight rates have been the main impetus behind the ordering bonanza, and the freight market has been driven largely by the vast growth in import demand for bulk and oil commodities by China in particular, against a limited fleet size. And the increasing popularity of liquefied natural gas is also driving shipyard orders, resulting in new orders, equating to 85% of the existing world fleet in cargo capacity terms. The other major component is the move towards larger container ships, which is also likely to have a major impact on galvanized steel demand in the new containers required to go with the new ships.

According to one industry analyst, "These are the biggest order books the shipbuilding industry has ever known. Unlike the previous boom in shipbuilding in the 1970s, most of it is concentrated in Japan, especially in dry bulk, tankers and containers, with more specialist ships being built in Europe. Thirty years ago, the orders were more evenly spread between Japan and what was Western and Eastern Europe."

In terms of steel demand, analysts said that lightweight tonnage of a ship determines the amount of steel used in its construction, including engine room and other machinery. "Tankers and dry bulk carriers dominate the order books, and both ship types use a lot of steel compared with, say, container ships, which have more open space within their hulls," said one analyst. Container ships are the fastest growing segment of the order book.

According to Clarkson, the combined tanker and bulk order book at the beginning of December totaled 2,133 ships, aggregating 150.9-mil dwt. The average lightweight of tankers and bulkers, according to one analyst, is around 11.5%, of which 20% is engine room machinery. On that basis, the order book for dry bulk carriers and tankers combined would generate steel plate demand of 13.8-mil mt.

Most of the deliveries are due in the next three years, although some yards have started to take orders for delivery as far forward as 2010. The container ship order book stood at 1,193 ships, aggregating 53.5-mil dwt. But, according to analysts, the trend in container ship construction over the last ten years has moved to building ships without hatch covers, requiring less steel. Consequently, average lightweights for container ships are much less than for bulk carriers or tankers.

One source said the average lightweight for the existing orders may be between 9% and 10%, of which the steel component would be around 80%. On the basis of an average lightweight of 9% of dwt on order in container ships, that would generate steel demand of just over 3.85%-mil mt. Brokers note that while most of the deliveries for container ships are due in the next three years, deliveries extend well into 2010.

In terms of the whole order book, analysts said it is hard to assess the average lightweight and statistics on this were not generally kept. "The general rule of thumb is probably around 8% to 9%," said one analyst. On the basis of 8.5%, with 8% of that being just hull and empty accommodation block, that would suggest steel demand of just over 17-mil mt.

And analysts pointed out that these figures do not include the metal component in engines, boilers, propulsion systems or onboard cargo handling systems.

Most of the steel used in shipbuilding is mild steel plate, along with high-tensile steels. But changes to international regulations governing dry bulk carrier construction in the last seven years have meant less use of high-tensile steel, which is prone to catastrophic corrosion if not maintained properly and increased use of mild steel. This has pushed the light displacement tonnages of dry bulk carriers up, according to analysts. The move to double-hull tanker construction and the increase in average size of all ship types has also helped lift steel demand in shipbuilding.

South Korea is now the world's largest shipbuilding nation, followed by Japan and China. At the end of October, South Korean shipbuilders had 83.75-mil dwmt on their order books, according to Clarkson. Japan had 75.39-mil dwmt, and China had 42.77-mil dwmt. Shipbuilding analysts expect China to become the world's biggest shipbuilding nation within the next ten years, with the advantage of having a vast domestic steel industry, as well as strong steel industries in neighbouring countries.

"Competition is intense between the three major shipbuilding countries. China has the advantage of cheap and skilled labour, while South Korea and Japan, who have similar wage costs, have the experience and superior productivity," said one analyst. Another shipbuilding analyst noted that South Korea is working with emerging Chinese shipyards in technology transfer deals, aimed at increasing productivity in China.