China’s Shanghai Waigaoqiao Shipbuilding (SWS) has painted a grim outlook for the already ailing shipbuilding market, as it projected the industry to bottom out in 2015 before recovering in 2016.

“Newbuilding prices started to move up in the second half of 2013, but shipyards can only fully realised these higher margin orders in 2016,” Hu Wenming, chairman of SWS, was quoted saying. “2015 will be a year used to digest low margin orders booked in 2012.”

Hu noted that the hike in newbuilding prices and orders in 2013 until the first quarter of this year is considered a market rebound rather than a recovery. “The rebound is because newbuilding prices had been too low in the two years before 2013. The latest round of orders have been concentrated in a handful of leading yards in China.”

He observed that China currently has around 700 active yards, and about 87 have received new orders this year, with SWS being one of them. “We did not deliberately compete with the smaller yards. In fact our prices are around 5% higher than them, and the choice lies with the owners,” he commented.

Shipbuilding figures showed that SWS has completed jobs on 20 vessels and one jack-up drilling rig with a combined capacity of 3.33m dwt in the first half of 2014. The jack-up rig of the JU-2000E design marks the first rig that is being built at SWS, and the yard has one more similar unit under construction.

Hu added that amid the tough operating conditions of high costs and low margins, yards would have to be prepared to handle losses, but at the same time reinforced capabilities with investments in R&D and technology.

Excessive shipbuilding capacity, especially in China, coupled with low freight rates and surplus vessel tonnage, have created a tough operating environment for shipyards since the post global financial crisis of 2008.

The recession of China’s shipbuilding sector has led to a widespread shut down of bottom-rung and speculative yards as the sector undergoes a consolidation phase that is likely to carry on for the next few years.

Ren Yuanlin, executive chairman of privately-owned Yangzijiang Shipbuilding, believed that the shipbuilding industry has touched bottom and embarked on a slow pace of recovery, with the consolidation phase continuing for some years.

The end result of the consolidation period will see only 10 Chinese shipyards accounting for 75% of the country’s shipbuilding market share, he said.

Yangzijiang is China’s third largest shipyard behind second place SWS and the number one Dalian Shipbuilding Industry Company, both of which are state-owned enterprises.