Asian shipbuilding industries:Big consolidation so far,more to come
One of the key investment themes of the shipbuilding industry isconsolidation. The handysize tanker market shows such trends moreclearly than any other ship segments. Up to 82 yards delivered tankers in2008, but the number went down to 25 yards in 2014. Furtherconsolidation will likely be driven by stricter environmental and safetyregulations. Despite rising order momentum of Handysize tankers after thecrude oil tanker boom, we expect such trends to continue. We believe thekey beneficiary will be Hyundai Mipo.
Handysize tankers are small-sized tankers (10K~60K DWT) mainlyused to transport oil products and chemicals. It is the largest segmentamong tankers, accounting 45% of the tanker order book (US$ basis).
Furthermore, handysize tanker orders have been growing faster thancrude oil tankers historically.
Significant consolidation so far. The handysize tanker shipbuildingmarket was highly fragmented. This fragmented industry structure enabledthe top tier to enjoy outstanding margins as well as continuedconsolidation. 82 yards delivered tankers in 2008, but the number fell to 25in 2014. Out of 179 yards with any building experience of handysizetankers since 2005, 132 yards have had no deliveries for the past two years.
Further consolidation among the survivors. Tightening environmentaland safety regulations will be applied from 2015, and these regulationsrequire significant changes in terms of ship design and moresophisticated building skills. Most yards building smaller sized ships donot have enough designers and engineers to meet the changes. More andmore equipment will be installed within the engine room. From mid-2015, the changes will be found from upgraded market share of top tiers.
Rebounding orders, but continued consolidation. Crude tanker ordersrevived sharply from end-2014 (see our report on 12 Jan 2015). Some16 Suezmax tankers were signed in 4Q14, the biggest volume since 2010and we expect new VLCC orders to reach 20+ in 1Q15. The rising trendsof crude oil tankers will be followed by Handysize tankers. We believeHyundai Mipo (OW) will be the key beneficiary of the industryconsolidation.