Rough seas ahead for Cosco

The US$5.7b orderbook is feared to sink.

According to a company statement, as at 30 September 2012, the Group's order book stood at US$5.7 billion with progressive deliveries up to 2014. This order book is subject to revision from any new or cancellation of orders that may arise.

New orders received in first nine months 2012 amounting to US$1.2 billion include 1 wind turbine installation vessel, 1 jack-up drilling rig, 1 jack-up barge, 1 tender rig, 1 semi-submersible accommodation vessel, 2 pipelay heavylift offshore construction vessels, 2 tender barges, 3 bulk carriers and 4 platform supply vessels.

The Group successfully delivered 30 dry bulk carriers in the first nine months of 2012. Of these, COSCO Zhoushan shipyard delivered 13 bulk carriers, COSCO Dalian shipyard delivered 9 bulk carriers and COSCO Guangdong shipyard delivered 8 bulk carriers. In addition, COSCO Nantong shipyard delivered 3 offshore marine engineering vessels - the Sevan Brasil, a cylindrical drilling unit, 1 shuttle tanker and 1 deep water semi-submersible drilling rig.

As the Group continues construction in 2012 on new ship building contracts that were secured in 2010 and 2011 at low contract values due to the slumping bulk carrier shipping market then, the Group expects operating margins on these new shipbuilding projects to continue to be under great pressure notwithstanding improving gains in efficiency and productivity.

In offshore marine engineering operations, the Group aims to enhance its offerings. It is currently one of the largest marine engineering groups in the People's Republic of China. Offshore marine projects in its order book as at 30 September 2012 include 1 deep-water drillship, 1 semi-submersible barge, 1 semi-submersible accommodation vessel, 1 jack-up barge, 1 semi submersible, 2 wind turbine installation vessels, 2 pipelay vessels, 2 Sevan 650 drilling units, 2 tender barge, 3 jack-up rigs, 4 tender rigs and 4 platform supply vessels.

However, as a relatively new entrant, the Group expects to incur higher costs during the execution of offshore marine engineering projects on new product types. Progressively, the Group will gather expertise and capabilities to reach out to a broader customer base, laying a firmer foundation for long-term sustainable growth in offshore and marine engineering operations.

The BDI started the year 2012 at 1,624 points and ended the first nine months at 766 points after reaching a 25-year low of 647 points on 6 February 2012. In the first nine months of 2012, the BDI averaged 904 points, which is a 36.7% decrease from the average of the corresponding period in 2011 of 1,427 points.

Any rebound in BDI is likely to be subdued as expansion in the global bulk carrier fleet continues to outpace demand.

The Group maintains a cautious outlook for the rest of 2012 as the state of global economy remains fragile with persisting concerns over the economic situation in Europe, geopolitical uncertainties and weakening global economic growth.

With excess capacity in the shipping industry and the uncertain global economic conditions against the backdrop of warnings from various bodies of a deterioration in global economic growth, including that in Asia, which may lead to a global recession, shipowners may be reluctant to place new orders for vessels and the Group may experience a decline in new orders in ship building and/or face greater downward pressure on operating margins.

Overall, the Group expects business and operating conditions for the rest of 2012 to remain difficult and challenging.