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Oil-Rich Nations’ Rapid Development Fuel South Korean Builders’ Sales Growth
By Jane Han
Staff Reporter
There is the majority that get beaten down by spiraling oil prices, and then there are those that ride the boom. Winning record orders from oil-rich countries abroad, local builders may secretly be wishing for the $135-a-barrel era to hold up longer.
Just three months into this year, South Korean contractors collectively signed overseas orders totaling $14 billion, which is double that of the whole year's worth of business in 2004.
The International Contractors Association of Korea (ICAK) confidently says domestic companies will easily outdo this year's target of $45 billion, thanks to skyrocketing crude prices that so far show no signs of waning. Its data shows that overseas contracts have jumped 78 percent this year.
Soaring oil prices in the Middle East have prompted oil-producing nations, such as the United Arab Emirates, Saudi Arabia and Kuwait, to erect new refineries, petrochemical plants and other infrastructure throughout the Gulf region.
And as South Koreans have been in their deserts ― building relationships and honing skills ― since the early 1970s, they have been awarded with some of Middle East's biggest projects.
``Domestic companies' cutting edge technology and know-how have led us to this point,'' said Kim Jong-goog, the head of the Middle East division at the contractors' association. ``This boom will go on for some time, at least while oil prices remain at this level.''
The Middle East currently accounts for about 47 percent of builders' overseas sales, followed by Asia, Africa, Central and South Americas and Europe.
Economic consulting group, Global Insight, forecasts that Middle East and Northern Africa will see economic growth of about 5.7 percent in 2009, significantly higher than other regions worldwide, which will help secure more business for local contractors.
From Plants to High-Rises
So what is being built? A complete range of facilities, says Kim Tae-yeop, head of the overseas construction division at ICAK.
``It goes anywhere from power generators to luxury towers,'' he said, adding that local builders have proved their ``expert touch'' in past projects.
Kim said domestic builders are one of the few in the world capable of carrying out the Engineering Procurement Construction (EPC), a turnkey method involving all aspects of building from design, construction to project financing.
``Plus, Koreans have been there long enough to know what works and what doesn't,'' he added. ``And they build more than just industrial plants. More contractors are erecting some outstanding fixtures.''
Among the diverse projects, Samsung C&T Corporation's iconic super-tower, Burj Dubai, which is nearing completion in the sands of Dubai, is one of the most standout examples lauded by industry experts.
The world's tallest building keeps its ultimate altitude a secret, but it is expected to stretch above at least 700 meters, or nearly twice the height of the Empire State Building. It will be 200 meters higher than the current tallest, which is Taipei 101 in Taiwan.
Ssangyong Engineering & Construction's 55-story Emirates Towers Dubai Hotel and 73-story Raffles City Complex in Singapore have also been noted as architectural landmarks, while Samsung Engineering & Construction's 88-story Petronas Twin Towers in Malaysia is another mega skyscraper completed in 1998.
``The top three world's tallest buildings all went through the hands of South Koreans,'' said Kim.
Doosan at Top
Leading the boom last year was Doosan Heavy Industries & Construction, which beat out Hyundai Engineering & Construction to take the industry's No. 1 seat, mainly with its power generators and desalination plant projects abroad.
Most recently in April, it landed an order worth $320 million for desalination plants in Kuwait.
Group Chairman Park Yong-sung said earlier this month at a corporate event that Doosan has successfully diversified its business portfolio and is currently generating some 50 percent of sales away from home.
The new owner of Bobcat also claims that its $4.9 billion acquisition of the globally renowned brand of compact utility tractors has helped fuel more businesses in the North American and Chinese markets.
Backed by its various interests, Doosan says it aims an annual operating profit of 10 trillion won by 2015 on sales of 100 trillion won.
Also in the top tier, Hyundai Engineering & Construction last month said it would exceed its 2008 order target, as it has already won more than 40 percent of the goal so far.
The builder, which dug into its first project away from home in 1965, said it aims a combined foreign order of $4.7 billion in 2008, up almost 17 percent from last year.
Hyundai's overseas businesses take up about a quarter of the domestic construction industry's overall global sales. Its most recent deal was to build a desalination and electric power plant in northeastern Qatar for $2.07 billion.
Another recent deal it made in the region was a team effort made together with GS Engineering & Construction, SK Engineering & Construction and Daelim Industrial Co. to win oil refinery-building contracts in Kuwait.
The $6.3 billion contracts handed down by the Kuwait National Petroleum Company are part of a project to build a large refinery with a daily production capacity of 615,000 barrels in the Persian Gulf.
Of the $8.3 billion refinery project, South Korean builders brought home contracts totaling $6.3 billion. Construction is set to begin as early as this month, and slated for completion in the first half of 2012.
| What's After the Boom? While the business is good in the Gulf region now, experts say companies should prepare for the days following the oil boom. The Construction & Economy Research Institute of Korea said South Korean contractors should expand their business beyond the Middle Eastern countries. It said global construction giants are diversifying their business portfolios, away from industrial plants, but pointed out that domestic firms' sales are excessively dominated by oil-related projects. ``The recent sales boom is heavily dependent on the oil-rich nations, so builders should be sure to have their next growth engines in mind to prepare for when these times are over,'' the institute released in its monthly report. Recent moves seem to show that some companies are already stepping up into their next game, as a growing number of them are making inroads into the Brazil, Russia, India and China (BRICs) markets. Among them are POSCO Engineering & Construction, GS Engineering & Construction and Hyundai Engineering & Construction, which are actively carrying out feasibility studies in the regions to go for another boom. jhan@koreatimes.co.kr |
