STX Skeptical About Recovery

The chairman of South Korea＇s STX Group added to the growing pessimism in the global shipbuilding industry by arguing that the company should move to hedge its bets in the emerging renewable energy sector. "The shipbuilding and shipping markets won＇t see a boom for the near future. This is a time for a new business paradigm," Kang Duk-soo said in a meeting with the company＇s senior executives, last week.
"Our business is highly dependent on shipbuilding and shipping, and should the two segments plunge any deeper, we will have to worry about survival."
STX, the world＇s fourth-largest shipyard, still has full shipbuilding orders for next year, but the future is murky beyond that as over-ordering looks to be a concern down the road.
Kang said that he has seen some slight signs of market recovery in recent months but added that signs of protectionism are taking a toll on the group＇s further expansion.
"We need to put more focus on off-shore related businesses in energy development and industrial plans to balance our revenue engines," Kang said, while also promising stricter management in cost and production efficiency as part of the company＇s "contingency plans."
The STX Group has STX Offshore & Shipbuilding and STX Pan Ocean as key affiliates. STX Pan Ocean is one of the leading shippers worldwide.
Market watchers and analysts are still divided whether the shipbuilding industry has hit the bottom.
There were some signs of a sectoral turnaround; however, it seems highly unlikely the demand for new vessels will revive within the year.
STX Pan Ocean＇s third quarter profits dropped sharply from a year earlier on falling freight rates, while its shipbuilding unit had just saved its "bottom line" for the July-September period.
"Since 2005, STX has been pushing offshore, industrial plant and solar businesses as the group＇s next engines. But those pitches haven＇t paid off due to meager attention," Woori Investment, a local brokerage, said, adding the corporate shift for new revenues needs "considerable time" to reap expected profits.
To counter a bleak outlook for the sector and increased competition from China, STX＇s bigger competitors, including Hyundai Heavy Industries and Samsung Heavy, are rushing to increase the portion of their non-shipbuilding businesses such as offshore, wind turbine construction and industrial plants by lowering the shipbuilding portion.
Although South Korea still has a technological edge in high-value ships used to transport liquefied natural gas, also known as oil drill-ships, the market for cheaper dry cargo carriers is increasingly moving to China.