Shipyards Face Global Price War Risk, Mitsui Engineering Says

Shipbuilders may be drawn into a global price war next year triggered by South Korean discounting, an executive at Mitsui Engineering & Shipbuilding Co., Japan’s second-largest builder of vessels, said. “A risk of some new Korean yards setting very low prices is our biggest concern,” Norio Nagata, the head of the company’s ship and ocean project division, said in an interview in Tokyo. The possible price cuts to fill idle docks could lead to global discounting, he said.
Shipping lines have postponed or canceled vessels as demand dropped amid the recession. Bulk carrier prices have declined as much as 30 percent from levels before the economic slump and a global fleet oversupply may continue for six years, boosted by the expansion of Korean and Chinese yard capacity and weak demand, Nagata said.
“Things will be extremely tough until 2015,” he said. “The most important thing is how quickly we will respond to a rapid change in the business environment.”
Mitsui Engineering & Shipbuilding rose 0.4 percent to 255 yen on the Tokyo Stock Exchange. The Nikkei 225 Stock Average advanced 0.6 percent.
The company will compete with Asian rivals by developing more fuel-efficient ships, said Nagata, who became head of the ship division in June. The company plans to sell, as early as 2013, very large crude carriers, or VLCC, and handymax vessels designed to cut greenhouse gas emissions by 30 percent.
Order Books
About 854 million gross-ton vessels are scheduled to come into the global ship market, based on order books held by yards around the world, Koichi Kato, an official at the transport ministry’s Maritime Bureau, said this month, citing government data. That’s equivalent to about 40 percent of the fleet in operation, even as demand is expected to remain flat, he said.
Overall capacity at South Korea shipyards is expected to increase by almost 20 percent in the two-year period ending December, according to analysts, including Cho In Karp at Good Morning Shinhan Securities Co. in Seoul. That includes plans by Hyundai Heavy Industries Co. to add two additional yards and the extension of docks by rivals.
Japan lost its title as the world’s largest shipbuilding nation to South Korea in 2000. Six years later, China overtook Japan as the second-largest shipbuilder by new orders.
Excess shipping capacity across the world will peak in 2012 before returning to growth as early as 2015, Nagata said.
Orders received by Japanese shipyards tumbled 63 percent in July and have fallen 76 percent since the beginning of this year, according to the Japan Ship Exporters’ Association.