S. Korean Shipyards Seek To Boost Profitability

Wednesday, February 07, 2001
After raking in almost 40 percent of global orders in 2000, South Korean shipyards plan to focus on boosting profit margins this year by being more selective in picking up orders, company officials and analysts say. The country's major shipbuilders are under no pressure to accept new orders as their backlogged orders are sufficient to keep their dockyards busy for the next two-and-a-half years.

But officials at Hyundai Heavy, the world's largest shipbuilding firm, said that its profit margins would increase dramatically through rigorous requirements on new orders and other cost-cutting measures. Samsung Heavy and Daewoo Shipbuilding, two major world shipbuilders, said they would adopt similar strategies this year. "In receiving orders, we will focus on high value-added ships such as bigger container ships and gas carriers," said Kim Chul-kyong, a senior sales manager at Hyundai Heavy.

"Profit margins would rise by 20 percent this year, aided also by our production-improvement measures," he said. Analysts said the ratio of operating profits to sales for Korean shipyards averaged 16 percent in 2000. In 2000, South Korean shipyards received orders totaling 10.4 million compensated gross tons (CGTs), 38.7 percent of global orders, according to the Korea Shipbuilders' Association.

But actual ship construction in Korea was only 6.05 million CGTs, worth $9.6 billion in the year, up slightly from five million CGTs worth $8.2 billion in 1999, the association said. "Global orders are expected to shrink by about 30 percent this year along with the world's economic slowdown," said Koo Bon-sung, a spokesman for the association. "But Korean shipbuilders would be able to add 6.6 million CGTs of new orders this year, maintaining our level of backlogged orders." Hyundai Heavy's new shipbuilding orders totalled $5.1 billion in 2000, up from $3.2 billion worth in 1999, but the company said they would fall to about $3.3 billion this year. Backlogged orders were estimated at $6.9 billion at the end of 2000. Daewoo Shipbuilding received $3.3 billion in shipbuilding orders in 2000, raising its order backlog to $4.5 billion. In line with its selective order strategy, its orders this year would be about $2.5 billion, a company spokesman said.

"We plan to build more high value-added VLCCs (very large crude carriers) and LNG (liquefied natural gas) vessels this year to be more profitable," said Daewoo spokesman Kim Do-kyun. Samsung Heavy, which earned $3.6 billion worth of shipbuilding orders in 2000, set its target down at $2.8 billion for this year. Its backlog orders were $5.9 billion. "Our strategy will not be different from our peers in Korea," said Lee Hong-yon, spokesman for Samsung Heavy. "Our share of high value-added ships would increase to more than 50 percent this year from about 45 percent last year." Samsung would capitalize on its expertise in oil drill ships, floating product storage offshore (FPSO) and LNG carriers, he said.

Analysts said European Commission complaints about South Korean shipyards' low-price practices would not affect Hyundai Heavy and Samsung Heavy much, but Daewoo would remain a target due to loan incentives it had received under a debt workout program. The shipbuilding unit of the Daewoo Group, along with 11 other Daewoo companies, was rescued by creditors in August 1999 after a recession the previous year hit its business. Hyundai and Samsung received orders in open biddings and were already efficient enough to make hefty profits in shipbuilding operations, analysts said. - (Reuters)

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