Korean Shipbuilder See Capacity Shortage

An executive at South Korea’s Hyundai Heavy Industries, the world’s top-ranked shipbuilder, said on Tuesday there was a global capacity shortage in shipbuilding despite European Union claims to the contrary.

In an interview with Reuters, he also said the shipbuilding division’s order book was likely to decline this year in an effort to improve profit margins by being more selective in taking orders. “The world’s shipbuilding industry is seeing shortages of supply unprecedented in 20 years,” said Han Dae-youn, executive vice president and chief marketing officer (CMO) of Hyundai Heavy’s shipbuilding division. “But the issue is whether producers can provide ships at market prices,” he told Reuters in an interview.

EU Trade Commissioner Pascal Lamy said in February a crisis in global shipbuilding caused by excess capacity was driving prices into a downward spiral and threatening the existence of European yards. At the end of last year, Korean shipyards had 16 million compensated gross tons in orders, sufficient to keep them fully occupied for two and a half years. Compensated gross tons is a measurement that allows for the differences in the complexity of ships.

The demand was coming partly from increased use of clean energy, like natural gas, leading to demand for more liquefied natural gas (LNG) carriers and shipping companies ordering larger containerships to achieve greater economies of scale. “New orders worldwide for LNG carriers ranging from 138,000 to 142,000 cu. m. would be about 50 ships by early next year,” Han said. “The proportion of the high value-added ships would rise to 20 percent of our total shipbuilding orders in 2001, up from only seven percent in 2000.”

Hyundai Heavy’s new shipbuilding orders totaled $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 in 2001 as it planned to focus on boosting profit margins by being more selective in receiving orders. Han said the company’s orderbook of new containerships would fall to 35 percent of the total orderbook this year from about 40 percent in 2000, while the oil tankers would rise to 35 percent from 28 percent.

The strategy of focusing on higher margin orders would improve profitability of Hyundai’s shipbuilding division greatly this year, he said. “Our shipbuilding division will be able to generate more than 80 percent of profits this year, with its contribution to sales revenues staying at about 55 percent,” Han said. Hyundai Heavy earlier said it aimed to earn 350 billion won ($275 million) in net profit in 2001 on sales of 7.3 trillion won. Its net profit was an estimated 15 billion won for last year over sales of 6.63 trillion won.

Han said it would be difficult for Japanese shipbuilders to compete effectively with Korea even with consolidation. “Compared with Korean shipbuilders, Japanese shipbuilders have their dockyards scattered here and there. So it will be difficult for Japanese makers to see synergy effects from mergers,” Han said. “In addition, Korean companies, especially Hyundai Heavy, can benefit from its large-scale operations, like advantages in purchases of raw materials,” Han said. “In the next 10 years, I don’t expect to see any rivals on horizon.” — (Reuters)