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Yangzijiang hit by three cancellations in Q3 but lands trio of new orders

Yangzijiang hit by three cancellations in Q3 but lands trio of new orders
China’s Yangzijiang Shipbuilding has been hit by three newbuildings cancellation during the third quarter amid adverse conditions in the shipping market, but the yard also clinched three new orders and posted a profit.

For the three months ended 30 September 2016, the privately-owned yard saw cancellations for three 82,000 dwt bulk carriers and won orders to build three 1,900 teu container vessels.

Year-to-date, the group had secured 13 shipbuilding orders with a total value of $650m, still falling way short of its 2016 target of $2bn. On the negative side, the group saw termination of six newbuilding orders so far this year, but three of them have not started construction. An average of 20% downpayment of contract value had been collected for all the terminated contracts.

“There are virtually no new orders for bulk carriers and existing orders are either getting cancelled or deferred,” said Ren Yuanlin, executive chairman of Yangzijiang.

“The container shipping market, on the other hand, has entered into a more difficult phase following the downfall of Hanjin Shipping, and this challenging period will continue for a while,” he observed.

On the back of possibly the worse downturn for the shipbuilding industry, according to Ren, Yangzijiang has managed to stay profitable with a gain of RMB281.22m ($41.59m) in the third quarter, down 59% from RMB680.67m in the same period of 2015.

The industry recession also led to a workforce reduction of approximately 30%, or 6,000 out of 20,000 workers, over this year.

“Our aim is to keep the workforce lean in order to raise productivity. More importantly, we have to ensure our yards can maintain day-to-day operations, bearing in mind that newbuilding deals will continue to decline. We also have to keep chasing for new orders albeit not entering into loss-making deals – we are not prepared to take losses though there will be a higher pressure on margins,” Ren explained.

He pointed out that Yangzijiang will look to expand its portfolio on oil tankers, where it has so far only constructed two 27,500 cu m LNG carriers and a pair of VLGCs.

As at 30 September 2016, Yangzijiang sat on an orderbook of $4.4bn comprising 85 vessels, including 44 containerships and 37 bulkers, with progressive deliveries up to 2018-19.

“We have worked hard to build up the orderbook and the delivery track record, manage cancellation risk, explore opportunities in specialised vessels and high-value added vessels where demand is stronger, and optimise profit through further cost rationalisation,” Ren commented.

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