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Offshore Plan Soaks Big 3 Shipbuilders

Monday, August 3, 2015

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A venture into offshore projects led to a bad turn for the world’s three largest shipbuilders—Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries—BloombergBusiness reported Wednesday (July 29).

According to reports, all three experienced massive losses in the second quarter of 2015, to the tune of 4.8 trillion won (US$4.1 billion), worse than anticipated by analysts and the worst historically for South Korea’s shipbuilding Industry.

A 150,000DWT shuttle tanker built by Samsung Heavy Industries
Samsung Heavy Industries

The world's top three shipbuilders posted a combined 4.8 trillion-won (US$4.1 billion) operating loss in Q2 2015.

Daewoo was hit the hardest, reporting a 3.03 trillion-won (US$2.6 billion) operating loss. Samsung Heavy followed, showing a 1.55 trillion-won (US$1.3 billion) operating loss. And Hyundai Heavy posted an operating loss of 171 billion won (US$1.47 million).

The Financial Times reported that the “big three” shipbuilders made their move into offshore oil rigs and production facilities as a means to make up for the losses they felt from a supply glut in the commercial ship market, which led to fewer orders and lower prices.

Bloomberg suggested this move into the offshore market was further influenced by an attempt to avoid competition with Chinese shipbuilders who were able to make low-profit ships by way of cheap labor.

Goliat FPSO Hyundai Heavy Industries Co. Ltd.
Hyundai Heavy Industries Co. Ltd.

A venture into the market for deep-sea oil rigs was supposed to save the shipbuilders from the losses they experienced in a poor shipbuilding market.

However, Korean companies weren’t accustomed to working on deep-sea projects deeper than 1,000 meters, finding it to be more expensive and difficult at those greater depths.

Additionally, they didn’t anticipate that oil prices would fall or that international oil companies would cut their capital expenditure and request delays in delivery on their construction projects.

The Xinhua News Agency also attributed the colossal losses to these building delays and design changes on the offshore projects, pointing out that the companies had secured them at lower prices to begin with.

Heo Pil Seok, CEO of Midas International Asset Management Ltd., in Seoul, told Bloomberg, “Uncertainties still remain going forward, as the offshore rigs haven’t been completed yet and a low oil price lessens the need for new orders.”

The Greek debt crisis had an impact as well, according to Yonhap News Agency. It reported that Korea Investors Service data indicated South Korean shipyards had orders to build 85 ships for Greece valued at US$10.2 billion.

As analyst Seo Kang-min told Yonhap, “The Greek debt crisis is likely to have a limited impact on local shipyards at the moment, but we cannot rule out the possibility of it having a far-reaching impact down the road.”

Editor's note: This article was edited to correct the dollar value for the Greek ship order. 

   

Tagged categories: Asia Pacific; Construction; Daewoo Shipbuilding & Marine Engineering Co.; Earnings reports; Finance; Hyundai Heavy Industries Co.; Labor; Marine; Offshore; Oil and Gas; Program/Project Management; Samsung Heavy Industries Co.; Shipyards

Comment from Catherine Brooks, (8/4/2015, 11:39 AM)

Oh, too bad that companies wanting to make more huge profits while further destroying our seas got bit in the rear.


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