S.Korea: Shipbuilders in Danger of Losing Top Spot

Korean shipbuilders celebrated the country's sixth Shipbilding Day Tuesday, but in a much less festive mood than previous years. The country's top spot in the industry for the last 10 years is now on shaky ground, facing strong challenges from China. Since first reaching the 10 million-ton mark in orders in 2000, shipyards have been in full operation in Korea ― the world's biggest maker. Now companies have to worry about picking up new contracts, with China sweeping over half the global market, using a low-price strategy that is gradually draining orders from Korean shipbuilders.
This year so far, China has received 54.3 percent, or 2.11 million tons, of newly placed orders worldwide, while Korea has secured only 31.5 percent. Should this trend continue, Korea would be dethroned in shipbuilding for the first time since 1998.
What makes matters worse is that Korean makers are likely to further suffer over the coming years as China is now behind Korea only by the skin of its teeth in the amount of remaining orders as well. According to data from Clarkson Research, China has 57 million compensated gross tons (CGTs) in stored orders to go, only 1 percent smaller than those of Korea in the closest gap ever.
Korea overtook then industrial leader Japan in new orders in 1999 and in overall volumes of building in 2002. Last year, shipbuilding led the country's exports valued at $43.2 billion.
Shipyards also contributed to Korea's provincial economies. Ulsan and Geoje, South Gyeongsang Province, where most major makers are located, posted over $30,000 per person in yearly gross production, well ahead of other cities' averages.
But the current economic slowdown, which has been hitting the world since late last year, has changed the whole scene. While the markets for new ship orders are stagnating, Chinese shipbuilders have been in hot pursuit of their Korean rivals with the advantages of cheap labor and support from the government.
There is still a remaining gap in building volume, but many experts predict it will not be long before positions are reversed. It took three more years for Korea to surpass Japan in volume after first beating it in new orders. So far this year, China has built 23.4 percent of global vessel deliveries, compared with 15.5 percent in Korea.
Conversion to high-valued vessels is the only way for Korea to hold the top spot, industrial experts say. Ships built by China are mostly less lucrative bulk and container ships.
Growth in external form is likely to continue in the third year as companies here have orders to work on for the next couple of years and thick plate prices are dropping in international markets. What worries makers is securing orders in the future.
According to analysts, it will still take several more months before orders will be back on track with recovery of ship-related financing.
Most major local makers are currently concentrating on marine plants and special ships, bracing for contracting markets across the globe. In July, Samsung Heavy Industries won a $50 billion bid, jointly with French-based Technip, for the design, construction and installation of multiple floating liquefied natural gas facilities.
``Someday Chinese shipbuilders will surpass Korean ones in volume. Korea needs to have a quality-based strategy to maintain the top spot in the industry,'' a spokesman of a local shipbuilder said.