Sink or Sail? – Shipbuilders Face Critical Point for Survival


The nation’s shipbuilding industry officials are maintaining a cautious outlook, despite growing expectations about recovery following an increase in the number of orders that shipbuilders have obtained this year.

Although global market conditions seemingly support the optimism, they have mentioned government support, global environmental regulations and steel plate prices as significant factors which will determine the destiny of domestic shipbuilders.

According to industry officials, Sunday, the nation’s top three shipbuilders have won 53 contracts worth $5 billion this year, 25 percent of the total value of orders last year.

Hyundai Heavy Industries (HHI) has obtained orders worth $2 billion, including those for three liquefied natural gas (LNG) carriers, eight liquefied petroleum gas carriers, 10 oil tankers, six container ships and two very large ore carriers.

It also raised 1.23 trillion won (US$1.15 billion) in a rights issue earlier this month.

The company said it will use 820 billion won to improve its financial status and spend the remainder on research and development for eco-friendly, smart vessels.

The recent capital hike has lowered the company’s debt ratio to 78 percent from 89.9 percent last December, according to HHI.

Samsung Heavy Industries has received orders for eight container ships, two LNG carriers and two oil tankers.

It seeks to raise 1.4 trillion won in a rights issue to pay for corporate bonds and other debts maturing this year, as well as responding to an additional reduction in loans due to its worsening performance.

Daewoo Shipbuilding & Marine Engineering (DSME) has clinched orders for six LNG carriers, five very large crude carriers and one special ship.

The deals are worth $1.55 billion and account for 21.2 percent of the company’s annual target.

DSME posted 700 billion won in operating profit last year, beginning a turnaround after six years.

The big three shipbuilders have been proving their competitiveness in the global LNG carrier market.

Also, the outlook for the global shipbuilding market is bright, according to Clarkson Research.

The U.K.-based institute specializing in analysis of the shipping and shipbuilding businesses expects orders for 1,134 ships will be made this year and 1,444 ships next year, up from 993 last year.

However, workers at shipyards in Korea have yet to enjoy the fruits of the growing demand because they must wait a couple of years before building the recently ordered ships.

Suffering from the shortage of work, they have hoped for policies, steel plate prices and global regulations that would favor shipbuilding.

The government said it will come up with long-term plans to revive the nation’s shipbuilding industry, which has undergone a harsh restructuring following decreasing global demand.

As for the upcoming global environmental regulations, industry officials regard them as favorable.

The International Maritime Organization will implement the new environmental regulations in two years, so demand for new ships and the remodeling of existing ships will likely go up.

The expected increase of steel plate prices is an unfavorable factor.

Domestic steelmakers that raised their prices last year, have maintained their stance on an additional price hike.

“If the average price of steel plates goes up by 10 percent, the allowances for losses of HHI will be 141.2 billion won, while those for DSME and Samsung Heavy will be 148.2 billion won and 93.6 billion won, respectively,” Shinhan Investment analyst Hwang Eo-yeon said.

Moreover, the country’s mid-sized shipbuilders are facing mass dismissals following the government’s decision to carry out restructuring.

The government has decided to salvage troubled shipbuilder STX Offshore & Shipbuilding through a self-rescue plan, while filing for court receivership of the debt-ridden Sungdong Shipbuilding.

The two shipbuilders are heavily in debt to Korea’s two state-run banks, as they have struggled with snowballing losses amid unfavorable oil prices and the worldwide industry downturn.

After the government’s announcement, workers for the two shipbuilders held a rally in downtown Seoul last week, demanding the government revive medium-sized shipbuilding companies.

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Source: Korea Times


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