Korean shipbuilders are likely to continue their losing streak in terms of profit throughout next year because the bad economy is driving more ship owners to delay orders, executives said
Tumbling oil prices and fewer transactions are also sapping the demand for new ships, they said. The price of oil, which is one of the key factors to gauge the healthiness of the shipbuilding sector, dropped to its lowest level in more than a year because of fears of another recession.
Korea is home to the world’s three biggest shipbuilders ― Hyundai Heavy Industries (HHI), Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung Heavy.
``It’s true that Europe’s worsening debt-related crisis has left the economy of the United States on the edge of a new recession, which is truly bad for shipbuilders,’’ said HHI chief executive Lee Jae-sung in a meeting with reporters.
Lee said Hyundai is applying its fine-tuned contingency plans to prevent further profit drops, though factors are not on the company’s side.
``Since the second quarter, Hyundai has seen a decline of corporate profit and we are worrying about it. Next year will be difficult,’’ the chief executive said.
Demand for cheaper ships in the wake of economic turmoil has led to a surge in China’s shipbuilding industry. But that’s a totally different story for the Korean shipbuilding trio as they are more focused on manufacturing premium ships.
The shipbuilding industry is cyclical and has become volatile upon macro-economic moves.
``We don’t see any big turn in the global shipbuilding market next year. I have no question that the following year will also be difficult. Prices for ships have seen a steep decline,’’ said Roh In-sik, chief executive of Samsung Heavy.
``Samsung is being asked to secure our bottom line. All key indicators are bad,’’ he added.
Materials costs soared by 10 percent during the first half of the year from a year earlier, while the unit price per vessel fell between 20 to 30 percent, according to data from market research firms.
Hit by the negative trend, the local firms saw more than a 10-percent slide in their operating profit during the second quarter, though revenues during the third quarter rose by 10 percent year-on-year, data from the companies showed.
``We had previously expected an economic recovery in the United States and a bottoming out of the debt crisis in Europe, however, we haven’t seen any meaningful signals, resulting in major shipbuilders extending their losing streak,’’ said Lee Jae-won, an analyst at TongYang Securities, in a note to clients.
But Daewoo Shipbuilding painted a rather positive outlook for the industry as its chief executive believes that it’s unlikely the sector will fall into another recession.
``The global shipbuilding industry has been showing signs of a mild recovery since 2008. Although some say the worse is yet to come, I believe it’s very unlikely that the industry will fall into another deep recession,’’ said its chief executive Nam Sang-tae.
Nam’s remarks come after a report from Clarksons, a leading market research firm, said shipbuilding market activity is expected to pick up on both deliveries and orders with more ships being delivered and shipyards in Asia resuming work after the summer holiday period.
``With the major yards having a good level of forward coverage now, pressure to continue to book business at cost competitive levels is somewhat diminished,’’ it said in its latest report.
``Potential lapsed production intensive options may free up capacity and create opportunities and this will be something to watch.’’