China’s Bet on Shipyards Backfires as Oil Prices Threatens Industry

For China’s shipyards, the oil rig market that was supposed to be a blessing is in danger of becoming a curse.

As crude prices slide, oil producers are slashing new project spending. With a near 40 percent slice of a global market worth tens of billions of dollars, Chinese rig builders that offered juicy financing terms and discounts to leapfrog Asian rivals in recent years are now the most exposed to a slowdown.

Diversifying to pull out of a downturn in traditional shipbuilding, China’s state and privately owned yards have lured orders away from regional peers, building scores of rigs for down payments of as little at 1 percent. Many haven’t yet been chartered by oil explorers, industry watchers say.

Some in the industry fear that rig builders are now heading toward a slowdown, possibly with cancellations and price cuts, that could persist longer than the oil market’s slump. Even if oil prices recover enough to stoke exploration, an inventory of ready-made rigs will be on hand, delaying new construction.

“Future cancellations will depend on the market going forward and unfortunately we are looking at a real risk for yards in this respect,” said Joachim Skorge, regional head of investment banking in Asia for DNB Market.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza