Shipbuilders Act on Cool Market Call
By Kim Yoo-chul
Staff Reporter
Cash-flush Korean shipbuilders are expanding their business portfolios in a move to beat the market’s uncertainties adding to the forecast of a buyer’s market in the next three years.
Hyundai Heavy Industries, the world’s largest shipbuilder, clarified Thursday that is in talks with CJ Investment & Securities and CJ Asset Management about taking over a stake of CJ Group's two financial arms, a deal that could cost as much as 800 billion won ($800 million).
It is moving into the alternative energy business with the construction of a solar panel factory. Others are also keeping their eyes peeled, industry watchers say.
Hyundai Heavy’s move comes amid experts’ warnings that the global shipbuilding industry will face excessive capacity from 2010. They cited Chinese shipbuilders as the key cause for the oversupply, which may lead to a slump in freight rates and asset values.
``The slowdown in the forecast for global growth and container freight rates is being reflected in the contracting of container ship building orders, which have been declining,’’ said Urs Dur, an analyst for Lazar Capital Markets.
``The global credit crunch has also raised questions about the ability of shipping lines to finance their orders for new container and dry bulk vessels. I can say new orders for container ships are on the decline, especially in China,’’ said a local analyst.
Norwegian consulting firm Det Norske Veritas also said portfolio diversification of South Korean shipbuilders was needed citing the market oversupply.
Weeks ago, Hyundai decided to invest 300 billion won by 2009 to expand its solar cell plant in Eumseong, North Chungcheong Province, as part of its business diversification strategy to shy away from its traditional focus on shipbuilding.
``We lowered the portion of our shipbuilding business among the total sales to below 50 percent,’’ its spokesperson added.
Samsung, Daewoo Follow
The No. 2 Samsung Heavy Industries and No. 3 Daewoo Shipbuilding & Marine Engineering (DSME) are taking similar steps to defend profitability.
Samsung is enriching its business structure by specializing in what the company claims is a ``blue ocean’’ ranging from cruise vessels, LNG carriers to drillships; while DSME is expanding its overseas plant business in addition to exporting its shipbuilding technologies.
``Even larger shipyards have been troubled with expanding fleets due to tighter credit standards and a strong challenge from Chinese shipyards,’’ a spokesperson from DSME said, adding that as much as $14 billion in ship orders is threatened by cancellations and delays in the whole industry in 2008 alone.
A month ago, DSME agreed with the Omani government to set up a joint venture on a construction project in the oil producing Middle East country.