The Straits Times / The Business Times News on Cosco

China's Cosco Shipyard in US$113m expansion drive

(SINGAPORE) China's largest shipyard group, the Cosco Shipyard Group (CSG), is pumping in US$113 million to expand three of its seven shipyards, boosting its capacity by 28 per cent within a year's time, its main shareholder said yesterday.

The shipyard group, in which Singapore mainboard-listed Cosco Corporation (Singapore) and SembCorp Marine hold a 51 and 30 per cent stake respectively, is expanding capacity at its Zhoushan, Nantong and Guangzhou yards.

The expansion is being driven by rising demand and an increasing focus on higher value work such as single to double hull tanker conversions, VLCC (very large crude carrier) repairs, FPSO (floating production, storage, offloading) vessel repair and conversion and offshore rig component building like accommodation blocks and pontoons for semi-submersible rigs.

Big boats: The expansion is fuelled by rising demand for large tankers and rigs as well as vessel repair and conversion. Last October, CSG expanded its Dalian yard with a 300,000 DWT floating dock, boosting capacity by 73%

The current demand is primarily non-Chinese vessels with major clients from across the shipping industry including Titan Shipping, Teekay, NYK and OOCL, according to Cosco Corp vice chairman and president Ji Hai Sheng.

But Chinese oil and gas companies have signalled their intent to pump significant investment in offshore exploration and extraction which will fuel China's demand for rigs, he added.

An increasing focus on offshore engineering projects by the CSG yards - in particular Dalian and increasingly Nantong - has been aided by SembCorp Marine's expertise in the rig building market.

The shipyard expansion will require a total capital expenditure of US$100 million by CSG shareholders, with each contributing according to their relative stake in the group.

The shipyard group itself will contribute 100 million yuan (S$19.8 million).

Approximately 30 per cent of the total investment will be spent this year with the remainder next year, according to Cosco.

By the end of 2006, the CSG will have an overall capacity of 1.43 million dead weight tonne (DWT), up 6 per cent from the current 1.35 million DWT.

In a year's time, the group will have a total shipyard capacity of 1.73 million DWT.

Only 18 per cent of repair and conversion work is undertaken on Chinese-flagged vessels.

Bulk carriers form the lion's share of repair work comprising 51 per cent of all vessels, down from 71 per cent last year. Container ships and tankers make up 5 and 12 per cent respectively while the remaining 32 per cent are mixed - chemical tankers, passenger ships and specialised cargo vessels.

The expansion of the three yards follows that of the group's Dalian yard last October when the northern China yard grew its capacity by 73 per cent when it completed a 300,000 DWT floating dock, the largest in China.

At Zhoushan two new berths are being added and an existing 150,000 DWT drydock is being doubled in size and will be ready within the next two weeks allowing two Panamax vessels to be accommodated simultaneously.

A new 80,000 DWT drydock will be ready by the end of the year and another 300,000 DWT drydock will be ready by mid-2007.

Nantong saw a new workshop completed in June with another on-track by end of the year.

It will also get a platform and yard expansion.

At Guangzhou, CSG will add two 80,000 DWT floating drydocks and will lease two additional berths for 20 years.