(News Focus) Dry spell for shipyards may continue amid protracted slump

By Park Sang-soo
SEOUL, June 22 (Yonhap) -- Budding signs of an economic upturn are fueling
speculation that a dry spell in new orders at local shipyards may be over, but
analysts say global demand for new vessels will take some time to recover as the
global economy is still in a slump.

Orders for new vessels have sunk since the third quarter of last year, as the
credit crisis and the subsequent global recession prodded companies to postpone
delivery dates or cancel orders.
"There have been a lot of orders in the past few years, and local shipbuilders
enjoyed a heyday," said Chung Dong-ik, an analyst at Hi Investment & Securities.
"But given the current conditions, it is difficult to say when demand will
improve."
South Korea, home to seven of the world's top 10 shipyards, has clinched
record-high orders in the past few years because of strong demand for crude
carriers and offshore exploration equipment amid lofty oil prices.
According to London-based market researcher Clarkson Plc, Korean shipyards such
as Hyundai Heavy Industries Co. won a combined 17.5 million compensated gross
tons (CGT) in new orders last year, accounting for 41.1 percent of all new orders
worldwide.
But hit by the global economic crisis, demand for new ships fell 52 percent
worldwide last year. Orders won by South Korean shipbuilders also fell 47 percent
last year.
Indeed, Hyundai Heavy -- the world's largest shipbuilder -- reported that overall
orders in the first four months of this year fell 82 percent on-year. The company
has received no orders for new ships this year.
Other local rivals, such as Daewoo Shipbuilding & Marine Engineering Co. and
Samsung Heavy Industries Co., also have won few shipbuilding orders in the past
few months.
While Hyundai Heavy and other large yards in South Korea, the world's biggest
shipbuilding nation, have three years of order backlogs, excess capacity arising
from new shipyards has prompted some companies to negotiate lower rates, analysts
said.
"We can cautiously expect new orders to be placed in the second half of the
year," said Ahn Ji-hyun, an analyst at NH Investment & Securities. "But a
meaningful recovery will be possible in next year or 2011 because of
overcapacity."
Bucking the trend, some local shipyards have won orders recently, stoking
expectations that the shipbuilding industry is set to recover.
Daewoo Shipbuilding & Marine Engineering won its first order in nine months and
said it expects to sign more contracts in the second half for vessels and
offshore structures.
STX Offshore & Shipbuilding Co., owner of Europe's largest shipyard, received a
213 billion won (US$169 million) order earlier this month to build four tankers
for a European company, its first commercial vessel contract this year.
According to Clarkson, a total of 65 vessels were newly ordered globally in the
first four months of the year, only 16 of which are commercial vessels such as
container ships and tankers.
"We cannot say the sector is returning to its boom phase, but the deals may
signal that the industry is reaching its bottom," said Song Jae-hak, an analyst
at Woori Investment & Securities. "A mild recovery is expected in the fourth
quarter of the year."
In an effort to quench their dry spell, local shipyards are also bidding on
contracts to build drill ships, semi-submersibles and other offshore platforms.
Hyundai Heavy and two other South Korean shipyards are bidding to construct Royal
Dutch Shell Plc's floating liquefied natural gas production and storage unit,
which may be worth about $3 billion and will be the world's biggest.
Samsung Heavy appears to be in the best position to win the bid, as it has won
all such orders worldwide in the past few years, according to Kim Hong-kyun, an
analyst at Hanwha Securities.
"We can expect good news from Samsung Heavy's bid to win the offshore platforms
from Royal Dutch Shell," Kim said, adding that other massive offshore oil
development projects in Brazil may also provide chances for local shipbuilders to
win more orders.
sam@yna.co.kr
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