From bad to worse

Seen above is a dockyard of Samsung Heavy Industries in Geoje, South Gyeongsang Province. Domestic shipbuilders are feeling a tighter financial pinch as they suffer the double burden of sluggish demand and falling prices impacted by the prolonged global slump. / Korea Times file

Shipbuilders plunging into deeper slump

By Park Si-soo

Korea’s leading shipbuilders posted sharp declines in their second-quarter operating profits, adding further anxiety to their already troubled financial health.

Analysts said sluggish demand for vessels and sales at heavily discounted prices were to blame for the poor performances.

They added that the global shipbuilding market is expected to turn bullish from next year, which means local shipbuilders will remain adrift in tough waters for a while.

Hyundai Heavy Industries (HHI), the world’s largest shipbuilder by sales, posted a second-quarter operating profit falling 65 percent to 358 billion won from 1.03 trillion won, while its sales rose 2.3 percent to 13.7 trillion won from 13.39 trillion won.

The Ulsan-based company posted a 83 percent drop in net profit in the second quarter as lower prices for vessels and reduced gains from affiliates including Hyundai Oilbank, Korea’s smallest oil refiner, undercut the bottom line.

“Most ships contracted at good prices before the 2008 financial crisis have been delivered and now vessels contracted around 2010 at low prices are now awaiting delivery,” an HHI official said.

In the January-June period, HHI achieved 28 percent ($8.654 billion) of its annual order target of $30.552 billion. It recently revised down this target to $29 billion.

Samsung Heavy Industries posted operating profit of 264.3 billion won in the second quarter down 22 percent from 339.1 billion won a year ago. Its sales were up 6 percent to 3.35 trillion won from 3.16 trillion won. The world’s second largest shipbuilder posted a 26 percent on-year decline in second-quarter net profit.

As of Aug. 13, the firm had achieved 52 percent ($6.5 billion) of its annual order target of $12.5 billion.

Daewoo Shipbuilding and Marine Engineering (DSME), the world’s third-biggest shipbuilder by sales, is set to unveil its second-quarter results late August. Analysts say they will be as disappointing as the two others.

Another risk hurting the balance sheet of Korean shipbuilders is a growing inventory of unsold vessels. Shipbuilders here have put unsold ships up for resale at below-market prices but are struggling to get them off the hands.

In June, DSME said it’s scrambling to find takers for two 320,100 deadweight tonnage (DWT) crude carriers, after Taiwan’s Today Makes Tomorrow (TMT) withdrew the orders for the ships it made for in 2007.

STX Offshore and Shipbuilding has recently put up for resale three 57,000-DWT bulk carriers as Greece-based shipping company Trojan Maritime gave up its ownership prior to delivery. Each ship is up for grabs at $25 million, down 40 percent from its initial price of $40 million, according to STX.

Some analysts expect more vessels will be put up for resale.

“Given that major orders for shipbuilding come from Europe, the number of contract cancellations and postponed deliveries could increase further,” said Hong Sung-in, a senior researcher at Korea Institute for Industrial Economics and Trade.

“Luckily,” he said, “the overall market condition is better than that of 2009,” referring to another global financial crisis started by the collapse Wall Street banking giant Lehman Brothers.

pss@koreatimes.co.kr

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