Newbuild prices rise as steel plate cost increases

Prices of newbuilds are rising in line with steep rises in the cost of thick steel plate.

Brokers in South Korea say Capesize bulk carriers are being quoted at $110 million (Dh386m) for deliveries in 2011. Capes, which require up to 23,000 tonnes of thick steel plate per ship, were previously contracted by Korean yards for up to $100m.

The cost of building a VLCC will rise by $10m because of the heavy steel plate component. As much as 40,000 tonnes of thick steel plate are used in building large tankers.

Korean shipbuilders say they are adopting a prudent approach to accepting new orders in light of the increase in the steel plate price. Recent contracts relate to exercising options, sources said. Yards are evaluating costs and the pricing of newbuilds to factor in the latest increase by steel makers – Posco and Dongkuk Steel – sources said.

Rising prices of newbuilds also threaten to cause a new wave of order cancellations as financing for ships continues to tighten. However, shipyards are reaping huge profits from increasing prices and demand.

China's Guangzhou Shipyard International announced yesterday it was set to post a net profit of more than 1.45 billion yuan (Dh778m) this year following its takeover of Guangzhou Wenchong Shipbuilding. The profit forecast is based on the consolidated results of both companies for the first five months.

Eivind Grostad, Senior Vice-President and Regional Manager of ship classification company DNV Maritime, told Emirates Business that Iran has the ability to take up a huge chunk of the region's demand for newbuilds but lacked proper structures for shipbuilding. "Most orders at Iranian shipyards take an unreasonably long time to be delivered, so most shipowners look to the Far East to place orders. But it would help the region if proper structures were put in place in Iran."