Korea May Lose Oil Tanker Market to China
A series of mergers between Chinese shipbuilders are threatening South Korean mid-size companies which are already struggling to survive. The mergers are a favorable development for winning China’s approval of the proposed merger between Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. (DSME), but medium-sized Korean shipyards are concerned that they could lose deals to build oil tankers to Chinese companies as they did for bulk carriers.
China’s two largest dockyards – China CSSC Holdings Ltd. (CSSC) and China Shipbuilding Industry Corp. (CSIC) – submitted an application for merger to China’s Shanghai Stock Exchange on July 1. Following the move, the country’s four largest shipbuilders, including China Merchants Industry Holdings Co. (CMIH), China International Marine Containers Ltd. (CIMC) and AVIC International Holding Corp. (AVIC INTL), are also in talks for a strategic merger.
Such merger moves by Chinese shipbuilders have mixed effects on South Korean companies. They will have a positive effect on China’s review of the merger proposal between Hyundai Heavy and DSME. China will find it difficult to oppose the merger between the two Korean companies as similar mergers are promoted by its own shipbuilders. Samsung Heavy Industries Co. will not be affected much as well, according to experts. Some even say that the contract prices of South Korean shipbuilders will rather increase since there is a big technology gap between South Korean and Chinese companies.
However, mergers between Chinese shipbuilders are highly likely to pose a serious threat to South Korean mid-size shipbuilding firms. They have already lost most of the bulk carrier orders to Chinese shipyards. Moreover, their oil tanker market is now under threat. An official from a shipbuilding company said, “Greek shippers placed last month a considerable number of orders for Aframax oil tankers on Chinese dockyards, which offered a 5 percent to 10 percent lower price than South Korean firms. Chinese shipyards are aggressively pushing into the oil tanker market after bulk carriers.”
An Aframax ship is an oil tanker smaller than 120,000 metric tons.