The outlook for FPSO and wind power engineering vessels continues to improve

The most important raw material for the shipbuilding industry is steel, and China also has an absolute advantage in the cost and supply of steel. The cost of steel directly purchased by the whole ship production enterprise accounts for 25% of the cost of the ship, and about 40% of the cost if the parts purchased are added. China's steel products have a relatively obvious price advantage in the world, so it also provides the cost advantage of raw materials for domestic shipbuilding enterprises, such as medium and thick plate products, the current Chinese market price is about 20% lower than the price in Japan and South Korea, while most of the domestic steel industry ship plate production enterprises have established a long-term strategic partnership with shipbuilding enterprises in the common development. It provides a stable supply of raw materials for the shipbuilding industry.

High-end ship outfitting rates are still low, but breakthroughs are being made. However, for shipbuilding enterprises, Marine equipment belongs to the purchased part, and the products mainly include Marine power equipment, communication and navigation equipment, electrical equipment, etc., which accounts for about 43% of the value of the entire ship. Most of the ship supporting equipment are produced by a number of manufacturers, shipbuilding enterprises can be bidding according to the design needs, and obtain products with competitive prices. According to the "Analysis on the transformation and Upgrading Strategy of China's Shipbuilding Supporting Industry" (Gong Chaoyan), in 2020, the localization loading rate of South Korea and Japan's Marine equipment will reach 85% and 90% respectively, while the localization loading rate of China's three ordinary ship types will be about 80%, and the localization matching rate of high-tech ships such as large tankers and large LNG carriers will be less than 40%. At present, high-end ship types and core equipment are also rapidly catching up (low-speed machinery, Yinwa steel, etc., are realized). It should be pointed out that the key ship equipment is mostly licensed production, and the brand technology of the product is mostly from European enterprises. The Marine medium and low speed diesel engine is monopolized by the brand technology of MAN and Wartsila, two European enterprises, and the LNG liquid cargo containment system is monopolized by the French GTT company. Both Chinese and South Korean ship companies need to obtain brand certification and patent authorization of these companies, therefore, the competition between Chinese ship supporting enterprises and South Korean ship supporting enterprises is manufacturing capacity, labor costs, raw materials and other aspects of competition, there is no insurmountable technical barriers.

China's shipbuilding development trend: product structure continues to high-end, industry concentration continues to improve

High-end product structure: China's ship manufacturers continue to make breakthroughs in the field of high-end products, in the global new ship market, large liquefied natural gas (LNG) carriers (more than 170,000 square meters), large container ships (more than 20,000 TEU) and very large oil tanker (VLCC/ULCC) three types of high value-added vessels, by the end of 2022, Chinese shipyards accounted for 67%, 21% and 8% of global shipyards' orders in hand, respectively. It is worth noting that in 2022, the only two VLCC orders in the world were all undertaken by Dalian Shipbuilding Industry, a subsidiary of China Shipbuilding, and Chinese shipyards also made a historic breakthrough in the field of large LNG carriers. We believe that with the continuous breakthrough and precipitation of China's core technology and the continuous improvement of the shipbuilding industry matching rate, with China's leading advantage in the global manufacturing industry, China is expected to achieve a higher market share in the field of high-end products.

Increasing industry concentration: During the 2002-2008 super cycle, a large number of private shipyards flooded into the shipbuilding industry, resulting in a relatively low concentration of China's shipbuilding industry at that time. In 2009, the market share of the top three shipyards was less than 20%. After a long period of depression, the order reserve of small and medium-sized shipyards was rapidly exhausted, and the operation became increasingly difficult, forcing them to integrate and withdraw from the industry. According to statistics from the China Shipbuilding Industry Economic Research Center, the number of active shipyards in China dropped from 428 in 2009 to 118 in 2022, a decrease of 72%. According to Clarksons data, the market share of the top three and top five shipyards in China has increased from 19% and 37% in 2009 to 61% and 70% in 2022. In the future, with the continuous development of China's shipbuilding industry to the high-end, the large central enterprises led by China Shipbuilding have the strong support of government policies and financial institutions, and the customer qualification is also better, the competitive advantage will be more prominent, and the head concentration trend will be more obvious.