Top three shipbuilders expect wretched 2018

While the global shipbuilding industry is showing signs of recovery, Korea’s three big shipbuilders are still in a rut. Next year’s sales will be lower than this year’s.

Samsung Heavy Industries announced Wednesday it would increase ITS capital by issuing stock worth 1.5 trillion won ($1.37 billion) by next May, saying it expected operating losses both this year and next. According to the company, it posted 7.9 trillion won in sales this year with an operating loss of 490 billion won. For 2018, the company expects 5.1 trillion won in sales, down by 35.4 percent from this year, and an operating loss of 240 billion won.

As news spread that it was forced to raise capital, its stock price plummeted on Wednesday by 28.9 percent to 8,960 won.

Things look no rosier for the other two major shipbuilders: Hyundai Heavy Industries and Daewoo Shipbuilding & Engineering (DSME). Hyundai Heavy expects its 2018 sales to be 15.18 trillion won, down 11 percent from this year’s 17 trillion. Meanwhile, DSME is expected to see a 31 percent decline in sales to 7.86 trillion won from 11.37 trillion won this year, according to the finance research firm FnGuide.

It’s hard to believe next year will be worse for the domestic shipbuilding industry because 2016 and 2017 already represented a nadir. Thanks to a dearth of orders worldwide, the country’s shipbuilders only used 10 percent of its production capacity in 2016.

“Due to the worsening industry condition last year, our sales from new orders nosedived to $500 million [which was one tenth of the targeted $5.3 billion] in 2016,” said a Samsung Heavy Industries official.

Samsung Heavy Industries Industries planned to slash its manpower by up to 40 percent, which would have reduced its 14,000 work force to 8,400. But due to prolonged negotiations with its labor union, it only managed to let go of around 700 employees this year.

The 43-year-old company has debt of 1.6 trillion won maturing next year, which industry analysts say contributed to its decision to increase its capital.

While Hyundai Heavy and DSME are forecasting revenue declines next year, there are some bright spots on the horizon. DSME has managed to reduce its debt-to-equity ratio to 248 percent in the first half of this year from 2,951 percent in 2015 through a major restructuring.

And Hyundai accomplished its goal of winning orders worth $7.5 billion this year.

The global shipbuilding market is showing signs of recovery after a dismal performance following the 2008 global financial meltdown. According to Clarkson Research, which specializes in the shipbuilding industry, new ship orders are expected to reach $80.9 billion next year from $37.7 billion in 2016, a 53.3 percent increase.

And shipowners are expected to need more environment friendly ships in response to tighter environmental regulations by the International Maritime Organization.

Analysts say Korean builders should focus on building pro-environment ships that are run on less harmful energy source, such as liquefied natural gas (LNG).

“An increasing number of shipowners will be looking for ships that are powered by LNG instead of using Bunker C oil,” said Yang Jong-suh, a senior researcher at the Export-Import Bank of Korea.
Source: Korea Joongang Daily