The 20-year ship cycle is expected to enter a new upward stage

Core view: The cyclical attributes of the ship industry are obvious, and the demand for new shipbuilding mainly comes from the "expansion demand" affected by the prosperity of maritime trade and the "replacement demand" affected by factors such as ship age expiration, environmental protection policies, and technological upgrading. In terms of expansion demand, the shipping boom in 2021 has recovered significantly, and the global new ship orders (according to the statistics of 10,000 deadweight tons) have increased by 97.2% year-on-year, and the caliber of new orders in 2022 has increased by -36.5% year-on-year, but the amount of new orders still increased by 8.2% year-on-year, mainly due to the current full production schedule of shipyards. Shipbuilding has entered the single link of "volume reduction and increase"; In terms of replacement demand, the average age of ships dismantled around the world is about 25 years, the last round of delivery peak ship replacement cycle is coming, and environmental protection policies may further accelerate the replacement demand for ships. We judge that the two major demand resonances of "expansion" and "replacement" in 2023 are expected to promote the shipbuilding industry to enter a new round of upward cycle.

1. Historical review: Twenty years a cycle, supply and demand mismatch is the main factor in the shipbuilding cycle

Shipbuilding belongs to the middle stream of the industrial chain, its upstream includes raw materials and basic equipment, such as steel plate, anchor chain, power engine, etc., and its downstream is mainly shipowners, including shipping and ship leasing companies. The middle reaches are ship final assembly manufacturers of China Shipbuilding, China Heavy Industry, Yangzijiang Shipbuilding, China Shipbuilding Defense, etc., including ship design, hull construction, power system research and development and production.

The shipbuilding industry has a long manufacturing time. Ship manufacturing from the order signing to the final delivery, the time span varies from 16 months to 36 months, according to the announcement of China Shipping Company, bulk carrier general ship type from the start to delivery about 10-12 months, container ship general ship type from the start to delivery about 14-20 months, It takes about 12-14 months for crude oil vessels to start and deliver, while the construction cycle for large LNG carriers is about 2 years. The delivery method of the contract payment shall be agreed upon in the agreement according to the changes of the market.

In the century-old history of the shipbuilding industry, ship delivery is mainly affected by the macroeconomic impact and the mismatch between supply and demand. It is difficult for the supply and demand of the ship industry to form a balance, and it is also affected by policy, war and other factors, and the industry cycle attribute is obvious. Looking at the history of shipping industry delivery, since 1886, we can roughly divide the shipbuilding industry into five cycles, each cycle of about 20-25 years, including recovery, prosperity, recession, depression four stages, each round of the big cycle up time may last for decades, the downward cycle will continue to maintain more than 10 years. And in the short term will be affected by economic, policy and other factors, with the characteristics of large cycle, medium cycle and small cycle superimposed three cycles: 1) 1886-1919: The international trade cycle was on the rise, while the demand for maritime ships was driven by the First World War, and the shipbuilding industry showed a fluctuating upward trend, reaching the peak of 7.14 million GRT in this cycle in 1919. 2) 1920-1940: Economic depression led to a sharp decline in trade volume, the outbreak of the financial crisis in the 1930s, while shipbuilding overcapacity made the shipbuilding industry enter nearly 20 years of downturn, production fell to 490,000 GRT in 1933; 3) 1940-1973:1940-1945 World War II ship demand superimposed on the previous cycle of ship age expiration replacement demand, initial capacity shortage, a round of growth, rapid growth of international trade, shipbuilding industry orders rose steadily, in 1973, the global new orders reached a record high, the round of upward cycle lasted nearly 28 years; 4) 1974-1987: Global trade volume fell due to the impact of the oil crisis, while the supply side of the new entrants mainly South Korea to develop the shipbuilding industry led to overcapacity on the supply side, the price of new ships began to decline, 1987 global shipbuilding output fell to 9.8 million GRT; 5) 1988-2010: The growth of global trade combined with the expansion of shipyard capacity, and the shipbuilding industry entered a new round of great cycle. Around 2003, global shipbuilding production had recovered to the historic high level of 1975, reaching nearly 63 million GRT in 2007. China's shipbuilding industry has also been developed in this expansion cycle, forming a "three-pillar" shipbuilding pattern among China, Japan and South Korea. 6) 2011-2020: After 2008, the global financial crisis led to a decline in trade volume, superimposed early overcapacity, and the global shipbuilding delivery reached a high of 167.44 million DWT in 2011, after which the global shipbuilding industry began to enter a period of adjustment.