By Yoon Phil-jung
Researcher of Samsung Securities Research Center
One of the industries in which Korea excels is shipbuilding. China's hot economy and soaring oil prices have seen a boom in ship orders.
In fact, last year saw the highest number of orders since 2000. In the first half of this year, orders continued to soar and were 70 percent higher year after year.
Even if orders slow down in the second half, they would still match the 2006 level. Stocks of shipbuilding-related corporations have gone up as well.
This year's orders are mainly driven by shipments of bulk carriers and container carriers. However, Korean shipbuilders haven't been aggressive in trying to secure orders for bulk carriers. Instead, they have made significant profits out of container carriers.
Container carrier orders have increased for two main reasons. First, beginning this month, the International Maritime Organization's double-hull tanker requirement goes into full effect on all tankers orders this month.
It requires carriers to be fitted with double hulls to reduce the risk of oil spills. Ships with a double hull have 5 percent less loading capacity than ones with a single hull.
Consequently, clients have rushed to place shipbuilding orders before the August deadline.
Secondly, shippers are making sure their inventory fleet is sufficient over the long term. At present, the order backlog of shipbuilders extends through 2010.
Orders for Chinese container carriers are increasing, raising concerns among Korean shipbuilders. However, the market for large container carriers is still dominated by Korean shipbuilders.
Along with container carriers, offshore structures are a hot item that will lead to a rise in shipbuilding in the second half. Since 2005 when oil prices spiraled above $50 per barrel, orders for offshore structures have risen steadily.
The trend is expected to continue for the next few years at least. Samsung Heavy Industries received 14 out of 18 drill ship orders made worldwide after 2005.
Given that drilling equipment orders have soared this year, production equipment orders, including Floating Production Storage and Offloading vessels, are also forecast to increase.
Looking at the Chinese shipbuilding industry and its implications for Korean shipbuilders, China outpaced Japan in new orders received as of late June. Chinese shipbuilders have benefited indirectly from their Korean peers.
Korean shipbuilding companies have received so many orders that they now selectively choose value-added orders. Those rejected find their way to China. Chinese shipbuilders also are benefiting from an aggressive government policy to strengthen the industry.
China plans to double its current shipbuilding facilities by 2010.
Despite rapid development in China's shipbuilding industry, Korea's competitiveness remains far ahead of China because of its ability to produce special vessels such as large container carrier, LNG carrier, and offshore structures.
Competition will intensify with China's first LNG carrier due to be delivered in October this year. Between 2012 and 2013, China will be building 20 LNG carriers to complete its flagship LNG terminal project.
Once the project is complete, it's expected that China will be seriously engaged in attracting shipbuilding orders.
However, Korea's three major shipbuilders won't be easily caught as they are equipped with extensive experience and committed to constant R&D.
Korea's shipbuilding industry has become No.1 in the world thanks to constant technology innovation and production creativity. Korean shipbuilders are highly expected to make even further progress in the second half of this year.
This article was carried on the Web site of the Samsung Economic Research Institute.