Korean Shipbuilding, Shipping and Steel Industries Seize

14 November 2016

Korean companies are facing a do-or-die battle once again after surviving chicken games triggered by chronic gluts in the shipbuilding, shipping, steel industries. Japanese and Chinese companies which had been employing aggressive strategies with support from the governments in the restructuring process failed to survive slumps in the industries and recently withdrew from their business in the industries. On the other hand, Korean companies turned to surpluses after restructuring, and they have had the opportunity to launch a counter-offensive.

Korean shipbuilders such as Samsung Heavy Industries (SHI) Hyundai Heavy Industries (HHI) inked surpluses in the third quarter thanks to structural restructuring, while Japanese companies in a hot pursuit of the Korean companies was found to have suffered from massive losses. Namura Shipbuilding, the fourth-largest shipbuilder in Japan, recorded a loss of 7.8 billion yen in the first half of this year (April to September) in one year while Kawasaki Heavy Industries saw its operating income decrease to one twentieth and posted more than 200 million yen in net loss over the same period. Following this, Mitsubishi Heavy Industries announced plans to shrink the shipbuilding business, and Kawasaki pointed out the possibility of withdrawing shipbuilding and marine sectors.

HHI and SHI succeeded in going to the black in the third quarter, chalking up 321.8 billion won and 84 billion won in net income, respectively. Their orders are on a steady rise, too.

The shipping industry is in a changing atmosphere, too. Although Hyundai Merchant Marine (HMM) announced a normalization plan through debt restructuring, skepticism has prevailed in the shipping industry. Some experts said that HMM will fall into a liquidity crisis again next year and even expected that HMM will be acquired by the world’s biggest shipping company, Maersk. However, amid a slump in the global shipping market, Maersk’s earnings fell, giving the Korean shipping industry a new hope.

In the third quarter of this year, the company’s shipping division, Maesk Line (2M) posted an 11 percent drop in sales year on year and net loss of US$122 million according to its business performance report released this year. Maersk continued to play a chicken game to annihilate its opponents, but suffered from loss after an unreasonable price war. In the shipping industry, it is said that 2M has enjoyed excess profits thanks to a restructuring of Korean companies, but other shipping companies that formed the Ocean Alliance are also emerging as competitors by ordering large-sized new vessels. “It seems that a second chicken game between the two alliances is starting.” said a representative of Korea Ratings.

In the case of shipbuilding, it is forecasted that the containership market where large shipbuilding companies in Korea have advantages will recover beginning next year. According to industry trade magazine Tradewinds, Germany’s Hermann-Wulff handed over the 4,546-TEU container ship “Viktoria Wulff” to the dismantling market, while Greek shipbuilder Vox Ships recently decided to take apart the 4,546-TEU class container ship “Vox Queens.” It is worth noting that the relatively “young” ships which are only 10-years old, will be dismantled for the first time in 35 years. Therefore, Korean shipbuilders can have anticipation that they will be able to overcome a chronic new order cliff if they endure a little longer. In a recent report, Clarkson predicted that container ship orders will recover the fastest among orders by ship types as container ship orders will rise to 224 units next year, up 1.7 times from 134 vessels this year.

Source – Business Korea