Builders, Shipmakers Brace for Bitter Winter
By Kim Tong-hyung
Staff Reporter
It's been a dismal year for the country's construction industry, hit by a wave of bankruptcies caused by sluggish house sales and tight lending, but experts say builders have yet to see the worst. And as construction companies struggle on land, shipmakers are troubled at sea, with the global economic turmoil killing off orders.
According to the Ministry of Land, Transportation and Maritime Affairs Sunday, the country's number of construction companies stood at 55,831 at the end of October, 63 fewer than the previous month. It is the first time since January last year that the number of construction companies posted a monthly decline, the ministry said.
A total of 58 construction companies filed for bankruptcy last month, the largest number since 59 in December 2004. Government officials expect the slew of collapses to continue with creditor banks tightening their loan policy for developers as they push forward a debt-rescheduling program.
The debt-rescheduling program, recently approved by creditors, will allow healthier companies to extend loans by up to one year and also enables them to apply for additional loans after joining the program.
New orders taken by Korean builders totaled at around 6.7 trillion won in September, down more than 35 percent year-on-year and also an 11 percent decline from August.
``The companies don't have the numbers for their October orders yet, but we are expecting a decline,'' said a ministry spokesman.
Industry watchers say things could get worse before they get better, as there is little reason to believe construction companies will see their profit structure improve in the coming months.
Other than hopes for the reconstruction market rebounding in the latter part of 2009, the industry doesn't have much to look forward to.
``The increase in government spending and other policy measures, such as lowered interest rates, strengthened support of financial markets and deregulation of the construction market might have a quick impact, but the effect will likely be short term,'' said Huh Moon-wook, an analyst from Samsung Securities, citing uncertainties over housing demands and increasing numbers of unsold houses.
``Construction companies are likely to see their profit structure worsen after mid-2009, when their project-financing (PF) debts and unsold apartments, along with the increase in material prices, start to take a stronger hold,'' he said.
Shipmakers aren't in holiday spirits either, with the number of orders dipping to a six-year low. According to industry figures, Korean shipbuilders combined to receive orders for eight ships in October, the lowest monthly total since August 2008. The global industry saw only 46 ship orders last month, the lowest since February 1999.
Shipping companies are also bracing for tougher times, fearful of getting swept away by the tsunami caused by China's crumbling marine transport industry.
According to figures from the Korea Maritime Institute (KMI), China's eight largest ports reported a 31 percent decline in monthly freight earnings from their European routes in October, which added to skids in the North American and Middle Eastern routes.
The eight ports are experiencing slower growth in freight volume, the KMI said, and about 70 percent of the 110 shipping companies based at the city of Ningbo are on verge of bankruptcy.
There are concerns that the industrial meltdown in China could hit Korea's smaller shipping companies, which rely heavily on the routes to China and Southeast Asia.