Yangzijiang bags US$135m of LNG vessel orders

Singapore

SGX-LISTED Yangzijiang Shipbuilding (Holdings) has diversified its shipbuilding portfolio to LNG vessels as it seeks to refresh its product strategy. The Chinese company announced this week that it has secured new shipbuilding orders from JHW Engineering & Contracting (JHW) to build two 27,5000CBM LNG carriers for them. JHW is a subsidiary of JACCAR Holdings, which owns Evergas - a transporter of ethylene and ethane gas.

With downpayments duly received, the two LNG vessels worth US$135 million are now effective orders and included in group's order book. The orders are scheduled to be delivered in 2017. "Yangzijiang has entered a relatively mature stage in building bulk carriers and containerships and it has been on the management's agenda to formulate sustainable product strategy," Ren Yuanlin, executive chairman of Yangzijiang, said.

"Related research shows that (the) global LNG market will grow from 238 Mtpa in 2014, to 420 Mtpa in 2020, and is expected to further increase to 500 Mtpa in 2025. The strategy to grow LNG vessel business aims to capture the stable medium to long term demand with its promising outlook." Analysts were generally bullish about Yangzijiang's strategy to enter the LNG market and the contract wins.

"The LNG carrier market is among the few bright spots in the shipbuilding sector as barriers to entry are high due to the complexity of the vessel that requires greater precision and higher technical content while demand is growing rapidly with more LNG plants starting up in the United States, Australia and Russia to feed Asia's huge demand for gas. Over 200 LNG carriers are expected to be added by 2020, of which over 20 per cent are set to be built in China to deliver gas to its ports," Ho Pei Hwa, from DBS equity research, wrote in a note this week.

"The contract price of US$67.5m/unit appears higher than its Chinese peers and comparable to Korean rivals who typically dominate over 70 per cent of the market. We understand that payment terms are also decent, on par with other shipbuilding contracts, where payments up to 40 per cent based on milestone completions are received prior to delivery."