Korea's Shipbuilders Bulk Up Production Muscle

Posted on 23 August 2007

South Korean shipbuilders are expanding shipbuilding facilities to meet rising orders.

Hyundai Heavy Industries, the world's largest shipbuilder, said Thursday it will spend 180 billion won on a new shipbuilding plant that it will start constructing in the second half of 2009.


The new facility, which will be built in southeast city of Pohang, will increase Hyundai's yearly total output to 3.35 million metrics tons from the current 3.2 million tons.


Samsung Heavy Industries, the world's second-largest shipbuilder, said on the same day it will invest 270 billion won over the next three years to build a block assembly plant in Geojedo, South Gyeongsang province. The new factory will enable the shipbuilder to produce an annualized 100,000 tons of more blocks on 288,000 square meters of land.


Daewoo Shipbuilding is also set to expand its shipbuilding capacity further by lengthening its second dock in the southern city of Okpo to 570 meters from the current 380 meters by the end of 2009. Daewoo expects the new addition to allow the company to build an additional 10 large vessels annually.


Market watchers said the shipbuilding industry will continue its expansionary track for the coming years to keep up with strong demand.


According to data from the Ministry of Commerce, South Korean shipbuilders, including the world's No.1, Hyundai Heavy, have received 51.3 percent more orders during the first half of this year from a year ago, worth a record $33.2 billion.


But they added that more investments will be needed as the moves are the tip of the iceberg in terms of expansion.


``South Korean shipbuilders are gearing up their efforts to find a new growth engine. Although short-term prospects in the market are positive thanks to strong demand for vessels, the shipbuilders cannot guarantee their future without increasing production efficiency,'' says Lee Jae-won, an analyst from Tongyang Investment and Securities.


Analysts have also added shipbuilders were facing fears that they may lose opportunities to win contracts of pricey vessels without increased production capacities.


``The news that Hyundai will construct the largest ever dock, boasting 1 million ton in its Ulsan shipyard well reflects worries that aggressive investment will only be a winning card to gain more profits,'' an analyst from local securities said.


Hyundai hopes its new dock will generate an additional 2.5 trillion won in annual revenue, while Daewoo expects the new lengthened dock to create another 1 trillion won in sales revenue.


Some analysts say the danger is that in pulling out all the stops to meet ship owners' demands, the market will become oversupplied, leading to a slump in freight rates and asset values. But such possibility seems unlikely as Chinese shipbuilders are trying to bolster their presence centering on bulks and LNG tankers.


``It's too early to say `China Fears' will materialize soon. South Korean shipbuilders have two or three years more time to face off challenges from China. Market watchers say the challenge will be realized starting from 2010,'' an official from Hyundai Heavy said.


Korea Times, August 19, 2007

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