[SINGAPORE] The share price of Yangzijiang Shipbuilding has plunged nearly 30 per cent since the United States proposed in February levying US$1.5 million in fees on Chinese-built or Chinese-operated ships, as well as liners with orders for Chinese vessels, calling at its ports.
The Singapore counter hit a 52-week high of S$3.30 on Feb 20, but the rally that had started at S$1.70 in May 2024 quickly unravelled following the US proposal.
The fees and other shipping restrictions on Chinese vessels proposed by the US include port entrance fees of up to US$1 million a vessel owned by Chinese operators, or a US$1,000 charge for each net tonne of the vessel’s cargo capacity.
The proposals come amid a US probe into the dominance of China’s shipping over the past two decades. A January report said that China’s share of global shipbuilding tonnage had surged to more than 50 per cent in 2023, from 5 per cent in 1999.
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DBS Equity Research commented in a note on Mar 25 that Yangzijiang Shipbuilding has been the region’s only key listed shipping or shipbuilding company that has had its share price battered; its Chinese competitors and liners have held largely steady.
The brokerage is keeping a target price of S$3.80 on the China-based shipbuilder on the grounds that the “unwarranted” sell-off might have come partly from profit taking. It described this as a buying opportunity, and advised investors not to “miss the boat”.
“We find comfort that key shipyards are full for the next three years, providing sufficient time to react to potential policy change. Shipbuilding capacity remains tight, driven by fleet rejuvenation, the energy-transition trend and rising demand for defence vessels, making it challenging to find available slots outside of (the world’s) largest shipbuilding nation, China,” its note said.
Other equity analysts have rallied behind the shipbuilder and maintained their “buy” call on it, although they also flagged near-term volatility in the share price.
But the counter has not budged despite the calls. The Straits Times Index (STI) component stock closed 2.1 per cent or S$0.05 lower at S$2.32 on Tuesday as the third-worst performing counter on the blue-chip gauge. The STI closed down 0.1 per cent, in contrast.
At the analysts’ call for its financials in late February – less than a week after the US announced the port-fees proposal – Yangzijiang Shipbuilding’s management had reportedly said that it had not received any order abortions or delays.
The management was not keen to comment on this matter when The Business Times queried it recently on updates in order changes as well as its measures to counter the potential levy by the US.
It is probably hard to quantify the impact for now, as most shipping companies have guided passing through the higher port fees to cargo owners, DBS said in the recent report.
Yangzijiang Shipbuilding’s clients have calculated that the port fees would amount to US$100 per container – a sum that can easily be passed on to shippers, UOB Kay Hian noted in a Feb 28 report.
Chinese ship operators and shipbuilders are also exploring solutions such as shifting routes, forming allies or seeking production bases outside China to deal with the situation.
“In addition, shipbuilding value chains take years to build, require access to cost-competitive steel supply and skilled labour,” DBS added.
The management, however, commented to analysts that South Korean shipyards’ earlier delivery slots and competitive pricing could bring them some potential customers in the near term.
Indeed, we have seen the supply chains and plants relocated from China – what has been called “China plus one” – evolve into “China plus N”, meaning further diversification amid the world’s largest economy ratcheting up trade tensions against the world’s top factory.
The proposed levies did not come from US President Donald Trump. They were drafted before he took office in January, which shows that, regardless of political affiliations, the country’s leaders share a common agenda – addressing the “over-reliance” on Chinese shipbuilding.
If a carrier has to raise freight rates to offset the extra port fees, would it not make sense to use non-Chinese built vessels and pass the higher cost to shippers? This would probably achieve the same result financially, but would take the liners out of the crosshairs of the US.
Thus, the hit to Chinese shipbuilders such as Yangzijiang Shipbuilding might last beyond Trump’s present term. Shipowners and carriers, as well as investors, might want to make plans to avoid collateral damage.
