The Factors affectingthe World Shipbuilding Supply and

Demand

The Factors affectingthe World Shipbuilding Supply and

Demand

OECD WP6 WorkshopOECD WP6 Workshop4-5 Dec. 2008

The Korea Shipbuilders’ Association

Contents

1. Shipbuilding Demand Side

2 Shi b ildi S l Sid2. Shipbuilding Supply Side

3. Closing Remarks

1 Shipbuilding Demand Side1. Shipbuilding Demand Side

1. Is the China effect over ?

World & Chinese Oil Seaborne Trade Volume Trend

3,000 250

- Chinese contribution to the increase of world oil seaborne trade volume: 1st period : ’90 ~ ’00 (17%), 2nd period : ’01 ~ ’06 (28%),

- Chinese contribution to the increase of iron ore and container volume in the worldrespectively : Iron ore(1st period 52%, 2nd period 87%), container(24%, 11%)

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Source : Fearnley

0

500

1,000

1,500

2,000

2,500

3,000

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

(Uni

t:M

il.T

on)

0

50

100

150

200

250

(Uni

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China

World

2. Is the China effect over ?

- Chinese oil import will be doubled in 2015- * China consumed 385 mil ton of oil in 2007 which is 10% or less in world total

Still the main engine of the world newbuilding market

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- * China consumed 385 mil ton of oil in 2007 which is 10% or less in world total

- Steel production in China is supposed to be down in the near term, but will besteady thanks to the urbanization and industrialization( especially, in the western part of China) ; Demand for long-haul Iron ore is going to be steady

* China’s Communist Party unveiled its plan to double by 2020, the disposableincome of the 750 m people in the Chinese countryside

* China unveiled recently 586bil. USD of plan to boost national economy by 2010

3. Expanding yards vs. prolonged newbuildings

- In 2007, greenfield yards and newly established yards took the order almost30% of world total ( 86.1 mil.cgt) and also another 30% of this year (39.2mil. cgt)

- By shiptype, these yards took the orders of mainly bulker, tanker and smallcontainer ship

- A number of newbuildings in B.C. & Tanker might be completed behind theschedule or canceled

World Total ( Orderbook )

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4. International Rule driving Newbuilding demand

- In 2006, tanker was the main driverfor newbuilding orders, taking around40% of world total(61.1 mil.cgt) :partly CSR effect

- Owners want to avoid the additionalnewbuilding costs.

- We have seen PSPC effect in 2007

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- We have seen PSPC effect in 2007

* Next item : Ballast water treatmentsystem ? GBS ? GHG ? Double hullB.C. ?

Increasing challenge ahead forshipbuilders ; Environmentally safequality ship !

5. Replacement Demand

- Since 2003, ship-owners earned big money exploiting the old fleet- As at the end of 2007, total world fleet is 770mil. gross tonnage;

The fleet over 20 years : 26%- The phase out of old tonnage could be one of the forces to soften the crash

of freight market

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2 Shipbuilding Supply Side2. Shipbuilding Supply Side

1. World Newbuilding delivery, Scheduled & Actual

59.8

60.4

60

70

- Based on the delivery schedule, the completion peak might be seen withinnext 2years, which will be way below 60 mil. CGT due to ;Sub-prime loan trouble, green field yards’ taking lion’s share of workloads andshipping market correction

(Unit : Mil.CGT)

10

49.0

0

10

20

30

40

50

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source : Lloyd’s & Clarkson

2. World Shipbuilding Capacity Evaluation

- In April 2003, with the Chairman’s request, the Secretariat has prepared evaluation of shipbuilding capacity, utilising 2002 as the base year, with a forecast for 2007.

Definition of Future Shipbuilding CapacityFuture Shipbuilding Capacity is the Base Year Ship

building Capacity as modified by the following factors:

-Changes to the turnover factor.-New, expanded or deleted capacity.

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-New, expanded or deleted capacity.-Facilities used for other activities, such as military vessels, off-shore structures or other construction activities which could be converted to merchant shipbuilding.

- Global credit crunch → global investment shrinkage : except shipbuilding industry ?

LONG-TERM CAPACITY EVALUATION MIGHT MISLEAD UNDERSTANDING EXACT

SITUATION ON THE CAPACITY DEVELOPMENT !

3. Global Credit Crunch & Shipbuilding Industry

- Tight credit supply to make it harder not only for shipowners tofinance new ships, but also for shipbuilders who entered intoworld shipbuilding industry recently

• Implication ;

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- For shipping market perspective, tight credit condition mayprevent emergence of excess capacity in the near futureespecially for bulker, small containership and so on

- For shipbuilding market perspective, credit turmoil disturbs newlyentered yards completing their orderbook and facilitiesthemselves

- Owners consider freight market prospects, newbuilding prices and so on beforeordering new ship

- What we have learned under the current cyclical business circumstance;shipbuilders’ reliability (Not sub-prime yards) and profitability are welcome

4. Global Credit Crunch & Shipbuilding Industry

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3 Closing Remarks3. Closing Remarks

• World Shipbuilders enjoyed historical bullish market since 2003

• At the same time, world shipbuilding supply robustly invested

• Global credit crunch drive the global shrinkage ;

NO EXCEPTION FOR SHIPBUILDING INDUSTRY

Closing Remarks

• Under the circumstances, it is unreasonable to imagine the globalshipbuilding picture in mid & long term basis, therefore, we need to cautiously monitor the movements

• It is not the time to put international discussion for shipbuilding alone under the microscope but play our own role to overcome current harsh market first

• “We must start out with the premise that forecasting is not a respectable human activity and not worthwhile beyond the shortest of periods” – Peter Drucker