After suffering record losses last year, South Korean shipbuilders may have to brace for yet another tough year based on a prolonged global slump stemming from low oil prices and tougher competition with Chinese rivals, sources said Monday.
The nation’s big three shipyards — Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. — racked up a combined loss of 7.7 trillion won (US$ 6.41 billion) last year, due to increased costs from a delay in the construction of offshore facilities and order cancellations.
The figure marks the first time for all of the nation’s three largest industry players to register losses.
Hyundai Heavy suffered a loss for the second consecutive year by logging a loss of 1.36 trillion won last year, compared with a loss of 2.21 trillion won a year earlier.
Its operating losses also narrowed to 1.54 trillion won from 3.25 trillion won over the cited period.
Samsung Heavy, another major shipyard, posted a net loss of 1.2 trillion won last year, shifting from a profit of 147 billion won a year earlier. It racked up an operating loss of 1.5 trillion won last year, compared to an operating income of 183 billion won a year earlier.
Daewoo Shipbuilding was no exception. The shipyard suffered a record loss of 5.13 trillion won last year, shifting from the previous year’s profit of 33 billion won, and its operating loss also stood at a record 5.51 trillion won, a turnaround from an operating income of 471 billion won the previous year.
Industry watchers said the problem is that they are struggling to win new shipbuilding orders, but have failed to clinch new large orders for the past two months, feeling the pinch of low demand.
“Although January and February are considered the off-season, the recent situation is much worse than in the past,” an industry official said. “The amount of Hyundai Heavy’s orders is not notable; it is nearly zero.”
Lower oil prices have been leading to a drop in demand for new ships, such as offshore facilities, and Chinese rivals have scooped up a large slice of orders for smaller ships, in particular.
Mirroring their dire situation, the order backlog held by South Korean shipbuilders dropped to the lowest level in 10 years amid the slumping global economy.
According to data by global researcher Clarkson Research Services, South Korean shipbuilders had an order backlog totaling 28.44 million compensated gross tons (CGTs) as of end-February.
This marked the first time since August 2004 that the figure has fallen below 29 million CGTs.
Major South Korean shipbuilders have been pushing for restructuring since last year to get over unfavorable business conditions caused by falling demand and ship prices in line with the slowing world economy.
In the face of a protracted industry-wide slump, the shipyards have trimmed their order targets for the year by 20 percent.
Market watchers expect their business slump to continue this year, as the global shipbuilding industry is unlikely to turn around any time soon.
The stuttering shipbuilding sector is feared to be a major drag on South Korea since it is one of the key growth engines of Asia’s fourth-largest economy, along with electronics and automobiles.
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