The most difficult market conditions in 2009 are likely to be maintained
There is no doubt that Korea’s shipbuilding industry had a difficult time last year. The unprecedented poor market conditions led to fewer orders and the industry recorded a disastrously poor performance.
The total value of orders (US$9 billion) of the six listed companies; Hyundai Heavy Industries Co., Ltd., Samsung Heavy Industry Co., Ltd., Daewoo Shipbuilding & Marine Engineering Co., Ltd., STX Offshore & Shipbuilding Co., Ltd., Hyundai Mipo Dockyard Co., Ltd., and Hanjin Heavy Industries and Construction Corp. fell by 84% compared to 2008. In particular, the merchant ship market shrunk by 91% while the offshore plant market fell by 69%.
According to Clarksons, a shipbuilding and offshore market researcher, Korea’s shipping industry backlog was 53,760,000 CGT (compensated gross tonnage) and the total share of global backlog recorded 34.3% as of December 1, 2009.
This is lower than China’s backlog (54,670,000 CGT), with Korea ranking second after China (34.9%) in terms of total backlog share. As for orders as of November 2009, China recorded 6,510,000 CGT, outrunning Korea (2,510,000 CGT) to rank No.1.
The prospect for Korean shipbuilding companies in 2010 is not so bright. Although the order market has begun to show signs of recovery, global moguls are currently financially strapped. As a result, the general forecast from the industry does not include any new large-scale orders.
The Korea Chamber of Commerce & Industry (KCCI) also cast a bleak view, saying that the shipbuilding industry will have a difficult time in 2010 following a drastic fall in new orders, while the ‘Performance of Major Industries in 2009 and Prospect in 2010’ published by KCCI in December 2009 forecast a maximum backlog of just 2.5 years. The report also said that production and exports will be only 12,000,000 CGT and 43 billion dollars, respectively, a decrease of 7.7% and 6.5%, respectively. In addition, requests for delay of delivery or cancellation by ship owners, which increased rapidly in 2009, are likely to continue this year.
In fact, statistics from Japan’s Mitsubishi Heavy Industries revealed that the number of orders cancelled between October 2008 and May 2009 totaled 807. China’s Ministry of Industry and Information Technology also reported the cancelation of orders for 152 ships (4,390,000 DWT) during the same period.
These figures have led some to forecast a restructuring of the idle manpower and facilities of Korea’s shipbuilding companies, with one of the largest having already begun personnel restructuring and others expected to follow suit with other measures, including layoffs.
An executive from a large Korean shipbuilder expressed the industry’s fears, “Last year’s depression was something quite unknown to us. Marine transportation still shows no sign of recovery, and this year the shipbuilding industry will be faced with its biggest crisis.”
However, in some sectors of the industry there are brighter opinions, with some believing this year’s market will improve despite the various poor conditions. Recently, orders for bulk carriers, oil tankers, and LNG carriers have been made, while a large-scale offshore plant project that was delayed last year is likely to resume soon.
Daewoo Shipbuilding & Marine Engineering received orders for 20 ships, including oil tankers, deep-water drill ships, LoLo containers (transporting various freights such as automobiles and containers) and special ships to install an offshore wind turbine in December 2009. Additional orders for an offshore plant and oil tankers are impending.
An expert said, “The merchant ship market is growing again thanks to bulk carriers and oil tankers,” adding, “The large-scale offshore plant will resume this year. Therefore, companies strong in each area are likely to benefit from this.”