The Trouble Triples for Korea’s Big Three Shipbuilders

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Samsung Heavy Industries (SHI), Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding & Marine Engineering (DSME) are the top three shipbuilders of South Korea.  In the third quarter of this year their combined operating loss is over 7 trillion won (US$6.15 billion).

Company

 Backlog

US$

won

Samsung Heavy Industries (SHI) 24 units US$24.3 billion (27.67 billion).
Hyundai Heavy Industries (HHI) 24 units US$22 billion (25.05 trillion won)
Daewoo Shipbuilding & Marine Engineering (DSME)  22 units  US$19.9 billion (22.66 trillion won).

There is a similar level of backlogs for all the three companies.  The DSME in particular, which posted some 3 trillion won (US$2.64 billion) in losses in the second quarter and some 1 trillion won (US$878.35 million) in the third quarter had been helped by the company’s creditors decision  to supply some 4 trillion won (US$3.51 billion) in the belief that all the remaining orders will be delivered by next year resulting in profit.  But, the business conditions of the company is not favorable till the end of next year resulting in further possible loss after next year.

DSME plans to complete the delivery of a total of 14 units by next year.   However, there are doubts regarding the delivery of these 14 facilities by next year, as the business conditions will be affected by low oil prices.  In fact, two contracts of drillships for an American shipping company were recently postponed to the fourth quarter of 2017.

The SHI has, however, made a one-time profit with incentives from the compliance process. Seven out of 10 orders to build drill rigs, including drill ships, were either canceled or postponed to after 2017.  For large projects worth more than US$1 billion (1.14 trillion won), including fixed platforms, there is only one Prelude floating liquefied natural gas facility (FLNG) worth US$3 billion (3.42 trillion won) to be delivered next year.  Ichthys Central Processing Facility (CPF) and Egina Floating Production Storage Offloading (FPSO) vessel constructions, which are considered projects that take losses, have been put off to next year and 2017, respectively.  Also, Petronas FLNG will be delivered after 2018.

Hyundai Heavy Industries has lost more than 600 billion won (US$527 million) in the offshore plant sector.  It recently received a notice of termination for the contracts from Seadrill and Fred.  Olsen to build two semi-submersible drilling rigs.  Most production facilities, which are currently under construction, will be delivered next year.  The delivery of the US$1.1 billion (1.25 trillion won) cylindrical FPSO will be completed in 2017.  As a result, industry sources say that the shock will continue until offshore plant facilities, for which the three shipbuilders received orders at low prices in the past, are all delivered.

Source: Business Korea

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