China Shipbuilders Chart New Course

The ultimate goal of Chinese shipbuilders is to expand into specialized ships of higher value such as drill ships and semisubmersibles where South Korean shipbuilders have a clear edge. Unlike jackup rigs, these highly engineered vessels mainly operate in deepwater conditions.

South Korea’s top three shipbuilders–Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co.–are likely to win a total $22 billion worth of offshore facilities in 2013, up 10% year on year, according to forecasts by South Korean analysts.

To be sure, offshore isn’t a remedy for all that ails China’s shipbuilding industry.

Barclays’ Mr. Windham said that around 70% of Chinese yards will simply fail in their attempts to move up the value chain. Shipbuilding experts in China typically predict up to 40% of China’s hundreds of shipyards could collapse.

But for a chosen few, expansion into offshore offers a lifeline.

Barclays estimates China’s market share in terms of deliveries of off-shore vessels–including jackup rigs, drill ships and semisubmersibles–to reach 25% in 2013, up from virtually none in 2005. The majority of Chinese deliveries are for jackup rigs.

For the five year period up to 2011, Singaporean shipyards had a jackup rig market share of about 50%, according to Douglas-Westwood.

“The offshore and marine industry has always been highly competitive,” said Tong Chong Heong, Chief Executive of Singapore shipbuilder Keppel Offshore & Marine Ltd., a unit of Keppel Corp. “We have managed to leveraged its strengths to stay ahead and time will tell if we can maintain our leadership position.”

Existing Chinese players include Dalian Shipbuilding Industry Offshore Co., Ltd. and Cosco Shipyard Group. New and aspiring entrants include privately owned Yangzijiang Shipbuilding Holdings Ltd. and China Rongsheng Heavy Industries Group. In December, Singapore-listed Yangzijiang won its first order for a jackup rig for $170 million.

“We are putting a lot of resources into offshore,” said China Rongsheng chairman and chief executive Chen Qiang said in a recent interview. The company recently established a unit in Singapore dedicated to offshore and is currently hiring more staff for the division.

Yet some analysts say a push by Beijing may not be sufficient to propel even leading Chinese yards to the top of the league of offshore vessel producing nations any time soon.

Mr. Waldie said a big challenge for Chinese players was improving their engineering talents, which in some areas “leave a lot to be desired.” He estimated it will take Chinese yards up to 10 years to acquire the necessary skills in the absence of growth through acquisition.

Barclays’ Mr. Windham is more upbeat. “I think the Chinese are going to be able to pull this off,” he said. “They are a credible threat for taking significant market share.”

— Colum Murphy, with contributions from Kyong-Ae Choi

(c) 2013 Dow Jones & Company, Inc.