Poor Economic Growth and Oil Prices leave South Korea Shipbuilders in Troubled Waters
After a decade of global dominance South Korea’s shipbuilders foresee an unprecedented crisis which intimidates the very existence of one of the flagship industries of Asia’s fourth largest economy.
South Korea’s “Big Three” Hyundai Heavy Industries, Daewoo Marine and Shipbuilding, and Samsung Heavy Industries once known as the holy trinity of Korea Inc. – controlled nearly 70 per cent of the global market. They achieved this feat after seeing off their European and Japanese rivals in the 1980s and 1990s.
The success story continued in the forthcoming years as the shipyards of these famous and prosperous shipbuilders churned out massive cargo ships, oil tankers and offshore drillers year after year for various shipping firms and energy giants round the world.
Whereas the recent years were not the same as it used be for these “Big Three”. The prolonged fall in the oil prices coupled with poor global economy crippled the demand for tankers and container ships. Also the other factors that kept these big giants away from profits were over capacity, regional rivalry and competition from cheaper Chinese shipbuilders.
A collective loss of 8.5 trillion won (US$7.4 billion) have been racked up these three firms in the previous year. To add to their woes the outstanding orders among all South Korean shipbuilders hit the lowest level in 11 years in February.
“Orders are drying up. We are faced with an unimaginable situation at which our dock may soon be empty,” Hyundai Heavy chairman Choi Kil-seon said in a letter to employees in March. “Even banks are so reluctant to lend to us. This is the harsh, undeniable reality we are facing today,” Choi said.
Hyundai considered to be the world’s leading shipbuilder by sales has conceded a net loss of 5.0 trillion won in previous two years.
According to Yang Jong-seo, analyst at the Export-Import Bank of Korea, the coming years would be a tough time probably the “worst year ever” for the shipbuilders as they are to begin a period of pain and state-led restructuring.
“I think the situation will hit the bottom in the latter half of 2017 and revive in 2018. The key question is whether the shipbuilders can manage to stay alive until then,” Yang told AFP.
Source: Channel NewsAsia
