Ship scrapping subsidies from the Chinese
government was the only thing keeping most mainland carriers in the black by
the end of 2015, so the announcement by Shanghai-listed China Merchants Energy
Shipping (CMES) that it expects the subsidies to boost its 2016 profits hardly
comes as a surprise.
CMES said in a filing to the exchange that it
has received CNY763 million (USD115 million) government subsidies for scrapped
ships so far this year and that this would have a “positive influence” on the
company’s profit.
This positive influence extended across the
China shipping industry and was the difference between profit and huge losses
in 2015. CMES itself recorded a profit of CNY1.3 billion (USD197 million) in
2015 during which it received CNY2.08 billion (USD316 million) in scrapping
subsidies.
But one of the biggest beneficiaries of the
scrapping policy has been China’s top shipping company China COSCO. The carrier
has subsequently been merged with China Shipping, but last year it reported a
result that was significantly boosted by the subsidies.
China COSCO posted a 2015 profit of CNY283
million (USD43 million) last year, while it received an enormous CNY4.25
billion (USD650 million) in subsidies for scrapping 28 bulk carriers and
container ships. The annual reports of another 11 listed shipping companies in
China showed that the subsidies they received were well above their total
profits.
The ship scrapping scheme was introduced in
2013 and was initially planned to run for two years but has been extended to
the end of 2017. Massive over-ordering by China’s shipping lines combined with
an economic slowdown to leave the industry with a chronic capacity overhang,
prompting Beijing to jump in with the subsidy to prop up the carriers. Shipping
lines are paid grants of CNY1,500 (USD228) per gross ton to replace old vessels
with new and more environmentally friendly ships.
Shipping companies will continue to benefit
from this policy in the coming two years, Wang Hai, a shipping expert, told IHS
Fairplay. For instance, China COSCO Shipping Bulk, the newly-formed branch of
China COSCO Shipping, announced that in the coming two years it will retire 53
old ships that have a total carrying capacity of 2.89 million dwt.
Source: fairplay. 20 June 2016
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