Asian shipyards: How will capacity reduction impact upstream costs?

The weakened demand for shipbuilding and offshore fabrication is severely affecting Asian yards. Global utilisation has fallen from 90% in 2008 to around 65%. The South Korean yards are the most exposed and restructuring is now underway, with a view to reducing capacity and ultimately costs. But with costs for new-build facilities remaining resilient, operators are now looking at less complex facilities. This is the domain of the key yards in Singapore and China and although these yards are struggling, their situation is not as bad as South Korea. Competition between yards in Singapore and China will intensify in the near term. But the backlog of conversion and mid-sized projects means cost inflation is a risk as oil price recovers.