Exchange rate trend affects the world shipbuilding industry

Statistics from June show that since 2005, the appreciation of the won against the US dollar has exceeded 10%, and the appreciation has reached the highest appreciation of the Asian currency. Since the beginning of May, the appreciation rate of the RMB has also accelerated significantly. By the time of writing, the central parity of the US dollar against the RMB exchange rate broke through 7.56. Since the exchange reform, the cumulative appreciation of the central parity of the RMB exchange rate has reached 7.22%.

The depreciation of the US dollar dominates the exchange rate. The continuous decline of the US dollar affects the trend of world currency exchange rates. From October 2000 to November 2004, the US dollar depreciated 62.1% against the euro, the US dollar depreciated 34.2% against the British pound, and the US dollar depreciated 6.9% against the Japanese yen. The US dollar index fell from 119.07 to 81.72, a drop of 45.7%. In such a short period of time, it is rare for the dollar to depreciate so much.

In the past two years, the dollar has continued to depreciate. According to the latest statistics, since January 2005, the US dollar has depreciated 4.01% against the euro, the US dollar has depreciated by 7.59% against the British pound, the US dollar has depreciated by 13% against the Korean won, and the US dollar has depreciated by 6.71% against the Chinese yuan. However, the US’s indulgence in the depreciation of the yen has put pressure on the appreciation of the renminbi, causing the yen’s exchange rate against major international currencies to fall, while the dollar has appreciated 16% against the yen.
Analysts believe that at present, the Chinese government may still let the RMB exchange rate appreciate slightly. However, it is worth noting that the central bank announced on May 18 this year that the floating range of the exchange rate of the RMB against the US dollar will be expanded from 3‰ to 5‰. Due to international pressures and the general expectation that the central bank will raise interest rates again during the year, it will further boost the pace of small appreciation of the renminbi.

The appreciation of the renminbi and the won boosted the price of ships. The world's shipbuilding orders are mainly in the hands of South Korea and China. As of June this year, the Korean shipbuilding industry has 35.8% of global handheld orders, and China accounts for 28%. Due to the development of global trade, the shipbuilding industry in China and South Korea is experiencing unprecedented prosperity.

South Korea has a monopoly on high value-added ships, and China has a unique advantage in low-cost manufacturing. According to Clarkson's statistics, in 2005, South Korea and China's new ship orders accounted for 57% of the world's total, and 2006 accounted for 75% of the world's total, accounting for 90% from January to May this year. In fact, South Korea and China are increasingly having the weight to decide the main voice of the world's shipbuilding.

The strength of the renminbi and the won will lead to a decline in the profitability of shipbuilding companies and the need to increase the price of the ship. This trend is bad news for the exporters of China and South Korea. At present, the appreciation of the renminbi and the won is still playing a higher role in the price of the ship. However, due to the depreciation of the yen against the US dollar and the euro, Korean and Chinese shipping companies did not dare to raise prices when faced with Japan’s competitors.

Ship companies should seize the opportunity to actively face the analysis of industry analysts, the risk of exchange rate fluctuations involves both ship prices and ship costs, which is a "double-edged sword." Quantitative analysis of the impact of exchange rate fluctuations on ship prices and costs can enable ship companies to better grasp the timing and strategy of ship orders, which is very important for shipbuilding enterprises.

In the export trade of ships, the risk of exchange rate changes is greater than that of general export trade. Because the ship's construction period is long, the time for collecting foreign exchange is also long, especially with the payment method of deferred payment. The collection time should last for several years after delivery. The longer the time, the greater the amount and the greater the unpredictable risk.

In the case of a weaker dollar, accelerating the shipbuilding cycle, making the US dollar settlement time advance, and increasing the proportion of funds in the previous US dollar settlement is an important and feasible method for shipyards. However, when the domestic currency appreciation trend is more obvious, it is generally accompanied by corresponding cost increases. For example, in order to avoid exchange rate risk, the shipbuilding industry in South Korea usually sells this credit to the bank, and obtains a certain amount of discounted cash to obtain won, but the company's dollar and euro income is greatly reduced after the conversion into the won.

Industry insiders suggest that it is still necessary to learn to use financial derivatives to avoid long-term foreign exchange risk mitigation, and should try to settle in RMB to avoid a large amount of future income shrinkage. For the subscription contract for the dollar return within the next three years, the shipyard should learn to add additional clauses to the contract to reduce the losses caused by the appreciation of the renminbi.

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