China's Yards Brace for Leaner Times as Oil Slump Sours Rig Building Spree

Earlier this month, COSCO Corp, one of China's biggest shipyards, said it has decided to terminate building an offshore platform known as Octabuoy after failing to find buyers.

'Main Culprit'

China became the world's biggest offshore drilling rig builder after rapid expansion led by the likes of state-backed yards China Merchants Heavy Industry, Dalian Shipbuilding, a unit of China Shipbuilding Industry Corp, and Shanghai Waigaoqiao, a subsidiary of China CSSC Holdings Ltd . All three yards declined to comment for this story.

But their jackup rig market share gains from traditional powerhouses in Singapore came at a financial cost.

"The Chinese yards are the main culprit (of speculative rig buildup)...Even if crude oil prices are to recover as expected, we expect new-build jackup rig orders to be subdued in 2015" with considerable inventory of already made rigs available, Nomura analyst Wee Lee Chong said in a report earlier this month.

China Merchants Heavy Industry has the largest number of orders at 14, followed by Dalian Shipbuilding and Shanghai Waigaoqiao, according to data from shipping consultancy Drewry.

By comparison, less than 5 percent of orders at Singapore yards Keppel and Sembcorp Marine are by speculative buyers, according to Oversea-Chinese Banking Corporation. Sembcorp Marine and Keppel declined to comment.

Except for a single order won by Daewoo Shipbuilding & Marine Engineering in 2013, South Korean shipyards make very few jackup rigs, leaving the business for its Chinese and Singaporean rivals. Companies like Samsung Heavy have concentrated on deepwater drillships instead.


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